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Wednesday, January 25, 2012

American Eagle Tries to Pull a Fast One

Investors are well served by setting up an RSS feed to the SEC filings of their investments.  If you are invested in companies like BAC and JPMC that file constantly, this may be a fruitless endeavour, but for most companies, it is very useful.  In fact, if you happened to be following the American Eagle (AEO) RSS feed, you would have noticed an interesting 8-K come down the pipe late Friday afternoon.

For those who are unaware, companies often seek to "sneak" unsavory filings in outside the news cycle, when people are not going to be following.  In this case, AEO attempted to minimize the attention given to the sweetheart deal given to its outgoing CEO.  Just take a look at this golden parachute:

  • Earned but unpaid salary
  • Deferred compensation
  • Lump sum retirement benefit
  • his 2011 bonus
  • one year of severance (minus any compensation related to use of company aircraft)
  • lifetime discounts on AEO merchandise (usually only for active employees)
  • accrued but unused vacation
  • outstanding restricted stock and stock options
Ok, so those aren't really too bad.  I don't really understand giving severance to someone who retires but I can live with it.  And something tells me AEO clothes aren't really this guy's style anyway.

Now it gets interesting, however:


Additionally, under the Succession Agreement, Mr. O'Donnell will perform general consulting services for the Company from the Termination Date through February 2, 2013.  As payment for the consulting services, Mr. O'Donnell will receive a consulting fee of not less than $552,500 and not greater than $2,210,000, with the excess over $552,500, if any, based on attainment of performance goals for the Company's 2012 fiscal year.
 To put this in perspective, the same 8-K details the payments owed their new CEO next year: a $500,000 base salary, with a bonus up to 200% of that, and restricted stock units worth $500,000.  He could potentially make $2 million next year.  O'Donnell could make more than that!  AEO will be paying two CEOs next year.  All for a company that, though they weathered the recession decently (core operations were not decimated), still has a long way to come to get back to where they were pre-recession.

This doesn't mean I plan on selling my stake in AEO, but it does make my blood boil a little bit.  This is management serving themselves and not their shareholders or employees.  This is the reason that Occupy Wall Street exists.  I'm watching you, AEO.

DISCLOSURE: Long AEO.

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