Nolan’sCompensation
Afterthe merger between the two companies, some management changes wouldtake place to ensure that the combined company is effectivelymanaged. Nolan Archibald would assume the position of the executivechairman of the newly formed combined company. As a result, Nolancompensation would be slightly reduced compared to his previouscompensation package [CITATION Fru11 l 1033 ].Following the merger,Nolan was entitled to a three-year contract. Therefore, the executivechairman’s annual salary for the three years can be broken down asfollows:
Accordingto Nolan’s contract, his annual base salary, annual bonus andannual equity would remain unchanged over the three year period. Thismeans that Nolan’s compensation based on the three items would be$10.025 Million each year. The amount includes the basic salary of$1.5 million, annual bonus of $ 1.875 million and an equity award of$ 6.65 million. This would bring Nolan’s compensation to $ 30.075Million at the end of the three years.
Assumingthat the cost saving of $350 Million would be achieved at the end ofthe three-year contract, Nolan’s compensation at the end of hiscontract would increase by $ 45 Million. Therefore, his compensationwould come up to $ 75.075 Million at the end of his 3-year contract.
Inregards to the stock value option, assuming that the option is worth30% of the underlying stock value and that the stock is valued at $53per share, Nolan compensation would increase by $15.9 million. Thestock option value is the product of the 30% stake of the underlyingstock, which is valued at $ 53 Million. (1 Million Shares * $ 53share price).
Therefore,Nolan compensation at the termination of his 3-year contract would be$ 90.0975 Million. This would be the sum of his annual base salary of$ 1.5 Million which would total $4.5 million after 3 years. Theannual bonus of $ 1.875 million would amount to $ 5.625 after 3years. The annual equity of $ 6.65 million per year would total $19.95 million after 3 years. In addition, Nolan would be entitled toa $ 45 million incentive pay for having acquired savings of $ 350million in the third year. He would also receive a stock optionvalued at $ 15.9 million at the end of his 3-year contract.
Reference
Fruhan, W. E. (2011). Stanley Black & Decker, Inc. Havard Business School, 1-4.