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American Eagle's Fortunate CEO



November 29, 2011 – Comments (2) | RELATED TICKERS: AEO

Board: Value Hounds

Author: LeKitKat

Robert Hanson must have one talented manager/negotiating team. American Eagle is paying major league prices for his services as CEO starting Jan 2012.

Hanson spent 23 years with Levis as global president. Guess he is qualified to make decisions regarding denim. Running a teen retailer may require a whole different skill set. Whichever way it turns out AEO is paying big dollars to find out if he can do the job and Hanson has nothing to lose if he stays 12 months. The deal is worth $12.6 million and even if he rolls craps, he is set for a couple of years.

The deal

The following are just the perks for signing on with AEO and not even part of the annual salary

This Chief Executive Officer Employment Agreement is entered into as of November 14, 2011 by and between American Eagle Outfitters and Robert L. Hanson effective as of January 30, 2012.

The signing bonus is major league caliber. He does have to repay it if he can’t stick it out for 12 months. I bet he can. He has to pay the taxes—guess he couldn’t get that paid as part of the deal.

a. Signing Bonus:

There is a one-time very generous signing bonus of $3,339,000.00, less applicable withholding taxes, payable in a lump sum within 60 days after the execution and delivery of this Agreement

Pocket money for Hanson is deferred compensation of $300,000 contributed by the company. Consider that this little throw away morsel is probably in excess of 10X what the working stiffs at AEO make.

b. Deferred Compensation:

Executive shall receive, pursuant to the Company's Deferred Compensation Plan a $300,000 credit to his "Annual Account" as a "Company Contribution Amount"

No deal is complete without a few million options and restricted stock passed out. Here we have another $2.5 million added to the pot. Hanson does have to meet some as yet unspecified performance goals. Will be interesting to see how low they set the bar.

c.Restricted Stock Unit Award:

Executive shall receive a Restricted Stock Unit worth $2,500,000.00. The number of units subject to this RSU award will be calculated by dividing $2,500,000.00 by the closing price of AEO common stock on the Start Date rounded to the nearest whole share

And of course AEO hands out options so Hanson can scrape by and sell share if he can't locate enough change to gas up the Rolls under the sofa cushions. These are just the signing perks. Can’t expect him to be able to live on a measly $1.03 million base salary.

c. Stock Options:

Executive shall receive a stock option grant with a grant date value of $2,500,000.00. The exercise price will be the closing price of AEO common stock on the grant date. The number of option shares subject to this stock option will be determined as of the grant date using a valuation methodology consistent with that used to compute the value of the Company's stock options in its financial statements.

Hanson cannot be expected to pay his own relocation expenses. Such hardship would likely detract from his job performance. We want his transition to be pain-free and cost-free.

d.Relocation Assistance:

Executive shall be eligible for relocation benefits that, at minimum, will be consistent with the relocation benefits provided to the Company's other senior executives.

Such benefits will include

(i) travel expenses for up to six (6) house hunting trips for Executive and a companion

(ii) household goods moving expenses, relocation
allowances, temporary living expenses, and other relocation costs or expenses to which the parties agree.

Downside is these must be repaid if he fails to stay at least 12 months. Any bets on his sticking around til 2013?

Legal fees? This covers reading the contract to find any pesky loopholes.

e.Legal Fees: The Company shall pay the reasonable legal fees incurred by Executive to review and negotiate this Agreement in an amount not to exceed Fifteen Thousand Dollars ($15,000.00).

Now we get to the real deal--salary

Ongoing Compensation and Benefits:

Base Salary:

The Executive gets $1,030,000.00 per year. During the Term, the Committee shall review the Executive's base salary on an annual basis taking into consideration such factors as market trends, internal considerations and job performance, and may (but is not obligated to) increase, but not decrease, the annual base salary upon such review.

This is a guarantee of $1 million per year that can only increase and not decrease if AEO continues to slog along not getting anywhere as it has done for the past few years. Where can I sign up?

And we don’t have to feel too bad for Hanson scraping buy on a $1 million per year because he gets bonuses

Annual Incentive Cash Bonus:

Executive will be eligible to receive an annual incentive cash bonus for each full fiscal year ending beginning with 2012 at a maximum of 130% of his base salary and, beginning with the 2013 fiscal year, the low end will be 130% of his base salary and the maximum will be 260% of his base salary. For the math challenged, at the high end he could take home $3.6 million per year.

There are predetermined performance goals. Be sure to look at the ease of attaining those when the proxy comes out if you are a shareholder

The good news is the outrageous reimbursement may be tax deductible. What a relief.

More stock grants to the tune of $3.2 million for 2012.

Long-Term Equity Compensation.

Executive gets long term equity incentive compensation in 2012 only of $3,200,000.

There are a few loose ends that anybody only making $3.6 million per year needs help with—health care, insurance, disability, expense accounts, luxury car for both personal and business use—you know, the usual that CEOs now demand

Employee Benefits:

The Executive may participate in the Company's employee welfare, benefit, retirement and deferred compensation plans, programs or policies that are in effect and generally available to the other senior executives of the Company, including any profit sharing or 401(k) plans; employee stock purchase, group life, health, hospitalization and disability insurance plans; paid time off; and discount privileges (the "Benefit Plans"). The Executive's participation in the Benefit Plans will be subject to the terms and conditions of each such Benefit Plan, including eligibility and compliance requirements. Notwithstanding the foregoing, the Company shall have the right to change, alter or terminate any Benefit Plan in its sole discretion._ _

Reimbursement of Business Expenses:

The Company shall pay, advance or reimburse Executive for all normal and reasonable business-related expenses incurred by Executive in the performance of his duties, including travel expenses, in accordance with the Company's policies and on the same basis as paid, advanced or reimbursed to the Company's other senior executives._ _

Car and Commuting Expenses.

During the Term, the Company will provide Executive with a single luxury automobile for both business and personal use. Any amount included in Executive's W-2 wages relative to such automobile shall be not be grossed up for tax purposes. _

No wonder angry mobs are occupying Wall Street. There is a whole class of business people who have spent years reaping the rewards of getting to the top that believe this is their right and they are entitled to live in a world the rest of us never know. He better do a damn fine job making AEO pay tired shareholders.

2 Comments – Post Your Own

#1) On November 29, 2011 at 1:59 PM, vriguy (68.37) wrote:

It is a thoroughly corrupt system.  And enough reason to not vote for the Republicrats. 

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#2) On November 30, 2011 at 9:51 AM, IlanBigfoot (93.00) wrote:

Fantastic!! This should be a feature on Motley Fool and they should run comparisions for every company. As shareholders we want to know what we are paying our employee (the CEO)! A nice Return-On-Salary (ROS) stat could be worked up, too.

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