Lockheed Martin buyout program could cost up to $200 million
Tuesday, September 14, 2010; 8:01 PM
Lockheed Martin's early-exit program for executives will cost the company $175 million to $200 million before tax, the Bethesda-based defense contractor reported in a Monday filing with the Securities and Exchange Commission.
The company announced this month that 600 executives - or a quarter of the company's total - have accepted the deal, agreeing to leave by February. Based on that figure, the average cost per employee could be as much as $333,000.
The news comes as threats to the defense industry loom. Analysts say the Pentagon's calls for reducing spending on "support contractors" - meaning those who provide professional, administrative and computer services - could hit the D.C. region particularly hard.
Lockheed's filing details how the payments will be made. An individual's lump-sum payment is broken into three elements: 75 percent to 125 percent of the executive's annual salary, based on years of service; a payment of $2,000 per year of service, up to 30 years, meant to defray future medical costs; and an amount equal to the executive's 2011 vacation pay.
Additionally, executives who take the buyout will remain eligible for bonuses early next year based on their 2010 performance.
Lockheed said in the filing that it expects to finalize the list of executives taking buyouts by Oct. 4, and that those executives are expected to leave by Feb. 1. The severance payment will be made within 90 days of an executive's departure.
During a call with investors in July, Bruce L. Tanner, Lockheed's chief financial officer, said he expected the early-exit program to recover its cost quickly.
"We're doing this [with] the idea of lowering our cost projections going forward," he said. "So from an overall perspective, I would think this would essentially pay for itself in fairly short order."
The company has presented the buyout as part of a larger set of cuts it is making to reflect a changed budgetary environment. For instance, Lockheed has moved to divest two business units, and it cut in half its participation at a major aerospace industry show this summer.
Lockheed declined to provide specifics on the executives accepting the buyout.
In the SEC filing, the company said it expects to report its third-quarter 2010 operating results Oct. 21.