“Do not go gentle into that good night,” a poet once said. But would you go a little more gently for $41.7 million?
The reason for the change: “the Board’s determination that he violated company policy and demonstrated poor judgment involving a recent consensual relationship with an employee.”
Doing the math
Let’s be very clear that there’s no allegation of harassment or the like. The relationship is described as “consensual.”
In fact, there’s nothing in the official statements specifically saying the relationship was a sexual or romantic one. (We’re all adults here — but neither McDonald’s nor Easterbrook’s statements explicitly say so.)
We also need to do a bit of reading between the lines to figure out the total pay package Easterbrook is getting, as he made way for incoming CEO Chris Kempczinski.
Some immediate reports after what McDonald’s simply called a “leadership transition” suggested it might have been a very costly transition for Easterbrook: a severance of 26 weeks’ pay. Half of his base pay of $1.35 million would have worked out to about $675,000.
Not nothing, but not in the realm of say, Adam Neumann’s $1.7 billion walkaway from WeWork last month.
But as I wrote about this the other day, it wasn’t clear if Easterbrook’s package truly was “based on just his salary, or other incentives as well.”
Now, an executive compensation firm has done the math.
Courtney Yu, director of research at Equilar, explained it to me as follows. Based on the separation agreement disclosed on Monday, he’d be entitled to:
- “Any options that are scheduled to vest over the next three years will continue to do so…
- “[A]ny performance-based RSUs [restricted stock units] will be pro-rated for the length of employment during the performance period and vest based on actual performance achieved.
- He’s also eligible for 26 weeks’ worth of base salary as a cash severance.
Equilar calculated it all based on McDonald’s stock price Friday, $193.94), and then added up everything: the $675,000 in cash, plus “$26.5 million in options that will continue to vest over the next three years, and $14.6 million in pro-rated performance equity”
It means the total severance could well work out to “$41,782,451.”
(“Wow, he is walking away with a lot of money,” Cornell Law School professor Stewart Schwab, an expert on employment law, told NPR when it reported on the Equilar numbers.)
There’s some volatility here, especially as #2 above will vary based on performance. Another estimate put the possible total amount Easterbrook could get as high as $85 million.
Regardless, this is a nice, big payout to not be the CEO of McDonald’s. (In fact, he’s also restricted from going to most competitors for two years.)
McDonald’s didn’t respond when I asked to verify these numbers or for other details, but they seem plausible. If so, it’s some pretty impressive negotiating on Easterbrook’s part.
His biggest win was apparently that the board of directors didn’t designate his departure as “for cause,” which could have led to his losing the stock options.
A painless way to go
More CEOs have left their jobs during 2019 than any previous period: 1,332 as of October, according to Challenger, Gray and Christmas. And, $41.7 million has to be near the top of the scale for those who departed.
Then again, McDonald’s stock basically almost doubled during Easterbrook’s tenure at the helm, which means I’m also not really in a position to say whether his total potential payout is a good thing or a bad thing, against a company that reported $1.6 billion earnings last quarter.
We can do the math on the inequality front, of course, and point out that an employee earning $15 an hour would have to work full-time at McDonald’s for more than 1,300 years to equal what Easterbrook is reportedly likely to get for not working at McDonald’s.
But from Easterbrook’s perspective, this has to be one of the most painless ways imaginable to move on from a company — especially when you agree with the board that your conduct means you had to go.
I hope that all your time as a business leader is fruitful and positive. But if you ever find yourself in the position where you’re being shown the door, remember how Easterbrook apparently managed to land.
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