Retention Benefits For Ex-McDonald's CEO Greenberg Begin

DES MOINES, Iowa -- This is a significant day for former McDonald's Corp. (MCD) Chairman and Chief Executive Jack M. Greenberg.

Under the company's executive retention program, Greenberg begins what is called his "transition period" - a move that qualifies him for five years of hefty benefits.

Although he retired last December under a cloud - the company's earnings were falling amid sluggish sales - Greenberg is entitled to receive half his highest annual salary along with various payouts from long-term incentive plans. He also will continue to participate in employee benefit plans, although he won't be eligible for further stock-option grants or other incentive compensation.

Since he left office drawing a base salary of $1.4 million, Greenberg will be paid $700,000 annually through 2007, a total of $3.5 million. The amount of his incentive plan payouts couldn't be determined. This past April 3 Greenberg received an $800,000 incentive payment reflecting the company's below-target performance last year.

As part of his retirement arrangement, the 60-year-old onetime accountant will don a pair of golden handcuffs. He's required by the retention plan to "devote such time to the business of the company as the company may reasonably request."

McDonald's declined to spell out what intentions it has to make use of Greenberg's expertise. Asked for details, a company spokesperson issued a statement saying that "Jack Greenberg has and continues to interact with McDonald's executives and others in the system."

Efforts to reach Greenberg for comment were unsuccessful.

Greenberg joined the fast-food giant in 1982 as chief financial officer after having led the company's outside auditing team. He assumed McDonald's top job in May 1999.

In light of the recent focus on corporate governance, some have questioned the appropriateness of Greenberg's retirement package, particularly the five-year payout. Executive compensation consultants seem divided on the matter.

Without specifically commenting on Greenberg's situation, Martin Kenny, managing director of Baker Thomsen Associates, Newport Beach, Calif., said that at the ex-CEO level, "five years may not be unreasonable, particularly if he's giving up his right to compete." At the same time, Kenny said that the "trend has been a gradual restricting on those policies in the post-Enron era. Shareholders are asking, 'What's their actual value?' "

But Dan Moynihan, principal with Compensation Resources Inc., Upper Saddle River, N.J., said that in general five years "is a little long. ... Three years sounds reasonable to me, and in light of everybody raising an eyebrow regarding corporate governance, the real issue here is how will shareholders respond."

McDonald's said its executive retention plan "was developed in the best interests of the company's long-term success. It is a plan which ensures smooth transition, eliminates the potential of a key executive competing against the company and, most importantly, grants the company continued access to the individual's expertise and knowledge."

First drawn up in 1998, the plan was reviewed by what McDonald's said was an independent compensation firm and a third-party legal expert, neither of which it identified, who concluded that its provisions were "within market norms."

While Greenberg and his successor, James Cantalupo, are entitled to 50% of their salary as retirees, a dozen other McDonald's executives can look forward to receiving 35% of their highest base for several years after retirement, should they embrace the company's executive retention program. The plan was modified last October to add them to the list of eligible candidates.

As for his stock ownership in McDonald's, the company's latest proxy statement shows that Greenberg owned 3.39 million common shares, plus 35,930 equivalents. Last year the company awarded him 600,000 options.

Also, in what some compensation experts regard as an unusual arrangement, McDonald's bought $774,900 worth of its stock back from Greenberg last year. It has entered into similar arrangements with him and a handful of other company officers previously.

"I don't get it," said Moynihan when learning of the buyback. "That flies in the face of what you're trying to achieve, where companies are expecting their executives to hold more and more (of their stock), not less and less," he said.

Bruce Ellig, a retired Pfizer Inc. (PFE) executive who's written a book called "The Complete Guide to Executive Compensation," added, "In buying back stock from specific executives a company has to be very careful. They can't give executives preferred status."