Bob Devlin, the chairman and chief executive of American General, is set for a stunning payout of more than $150m (€162m) as a result of the offer by Prudential, the UK insurance company, to acquire Devlin's US firm for $20bn last week.
By contrast, Jonathan Bloomer, the Prudential's chief executive, is on a far smaller package. His shares and options package at the end of 1999 was worth just over 2m (€3.16m) at current prices. Devlin's windfall is likely to infuriate staff at Prudential in the UK, who are sitting on millions of options which are under water. Prudential's share price has fallen 20% since Bloomer became chief executive last year.
Prudential staff, who received over 26 million options in 1999 or before, saw much of their paper value wiped out when the bid was announced and the firm's share price fell by more than 12%. Several million options, issued to staff in 2000, are now seriously under water, with the shares trading as much as 35% below the exercise price of the options.
According to the most recent proxy statement for American General, filed with the Securities and Exchange Commission a year ago, Devlin owned shares and short-term options which the bid by Prudential values at $109m. On top of that, Devlin, who raised over $100,000 for George Bush's successful US presidential campaign, owned restricted stock worth $20m.
He was also entitled to 'long-term incentive plan awards' amounting to a further $5.6m, again valuing them at the takeover price. Devlin also held, as at the end of 1999, options over a further 1.92 million American General shares, worth an estimated $28m. Some 1.35 million of these were granted in 1999, an award that underlined Devlin's dominance of the company. This grant meant that he received a startling 26% of all the options granted to all American General's 16,000 employees.
The total value of Devlin's shares, stock awards and options package amounted to $163m. However, this estimate is likely to be conservative because it does not include awards of stock and options Devlin will have received in 2000. These last will be disclosed in the takeover documents in a few weeks' time, said spokesmen for Prudential and American General. If Devlin receives a similar package to that of 1999, his payout from the Prudential deal could nudge $200m.
These stock awards are supposed to generate value only if preset performance targets are reached. However, change of control clauses trigger immediate vesting at the highest rates possible, an example of the type of boardroom excess that Prudential traditionally opposes.
Even this estimate may not reflect all Devlin's entitlement. He is on a three-year rolling contract. He could chose to leave in the 12 months after the Prudential takeover and receive three times his average annual salary and bonus. In 1999 Devlin earned just under $5m in salary and bonus, which could line him up for another $15m. American General refused to comment on Devlin's remuneration.
Devlin is already 60 and, although the American General rules allow him to retire at this age, he is staying on as deputy chairman of the combined group. He could thus choose to defer some of his huge entitlement.
The extent to which the company's shareholders have shared in Devlin's personal success is debatable. Between 1994 and 1999, according to the firm's own calculations, it underperformed the Standard & Poor's (S&P) 500 but easily outstripped its insurance peers in the S&P life and health index.
According to Prudential's annual report for 1999, staff shared 26.2 million options, with exercise prices of between 193p and 759p. Before Prudential's bid was announced, its shares were trading at 898p, leaving the options in the money. However, the day the deal was announced, the shares fell to 758p, just below the exercise price for many senior staff. However, board level management all have options with an exercise price that is well below the current share price.
The millions of options issued in 2000 have fared far worse, because in that year the shares traded in a range between 900p and 1123p. Bloomer himself received many of his options before 2000. In his five years at Prudential before becoming chief executive, Bloomer built up nearly 8,000 options at 254p and over 420,000 at 315p. At 790p a share, these options have a paper value of just 2.1m. His options from 2000 have yet to be disclosed.