Shareholders' 'say-on-parachute' votes will shed more light on executive buyouts after mergers.
CEO John Bar of AGA. Writing a profile on AGA Medical which makes a medical device that plugs holes in the heart. On Friday, patients whose lives were saved by the device will tell their story to employees gathered at the company's headquarters. Story is about how the company has overcome a turbulent past and is now a public company.
Several Minnesota technology companies became acquisition targets in 2010, so some CEOs from last year's list are not on this year's list. Some of those folks got golden parachute payments when the transactions were complete. We've dug out some of those pay packages.
The biggest acquisition of a Minnesota public company last year was when Dublin-based Covidien PLC paid $2.6 billion for EV3 Inc., a Plymouth-based maker of products to treat peripheral vascular and neurovascular disease.
Under his contract, EV3 CEO Robert Palmisano got as much as $31.6 million from the deal. Palmisano got a maximum $8.2 million in severance payments that included 36 months of his current base salary, bonus and a tax gross-up, which is a payment designed to cover the taxes due on the gains. In addition, he got $23.4 million for the value of his EV3 shares -- stock he owned or restricted stock in his name -- and the stock options he held.
Golden parachute payments are getting a fresh look from regulators thanks to the same legislation that's giving shareholders a say-on-pay vote at the annual shareholders meeting. The votes in either case are non-binding but the additional disclosure should inform shareholders.
In January, the Securities and Exchange Commission (SEC) adopted new rules on shareholder approval of executive compensation as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Shareholder meetings taking place after Jan. 21 are required to have an advisory vote on executive compensation, known as "say-on-pay" votes and provide their shareholders with an advisory vote on the desired frequency of say-on-pay votes.
In addition to say-on-pay votes, companies will be required to provide a separate shareholder advisory vote to approve certain "golden parachute" compensation arrangements in connection with a merger, acquisition, consolidation, proposed sale. These "say-on-parachute" votes are also non-binding.
The new requirements may change how termination or "change-in-control'' pay is disclosed. But a non-binding vote itself on golden parachute payments itself isn't going to lead to a lot of changes.
"If you sold your company, shareholders can advise you all you want, you are gone," said George Paulin, CEO of Frederic W. Cook & Co. Inc., an independent consulting firm that helps design compensation programs for companies. The real change in compensation practices will come from the say-on-pay votes, Paulin said.
"The say-on-pay vote itself is impacting these change-in-control benefits. Because if companies have what are poor pay practices with regard to severance, this issue could lead to shareholders voting against the company on say-on-pay." Paulin said.
Meanwhile, we reviewed some other notable Minnesota acquisitions last year.
AGA Medical of Plymouth was acquired in November by St. Jude Medical for about $1.3 billion. The deal adds AGA Medical's devices that treat structural heart defects and vascular abnormalities to St. Jude's cardiovascular business.
AGA CEO John Barr got $10.6 million for the value of his stock options and was eligible for change-in-control or severance payments of $1 million. But in Barr's case, St. Jude said Barr would be joining St. Jude and reporting to cardiovascular division president Frank Callaghan.
ATS Medical, also based in Plymouth, was acquired by Medtronic in April 2010 for approximately $370 million. ATS makes products for heart valve disease therapy. Based on the $4-per-share offer for ATS, chief executive Michael Dale's severance was approximately $6.1 million, including two times his annual salary, $4.1 million from restricted stock that vested immediately and $1.1 million from stock options.
ADC Telecommunications was acquired by Tyco Electronics on Dec. 9 for $1.3 billion, or $12.75 per share.
Bob Switz, CEO of ADC, said he'd stick around to aid in the transition but was still eligible for as much as $17.4 million including change-of-control payments of $8.9 million, $1.6 million from restricted stock units, $3.6 million for performance-based stock units and $3.4 million for the value of his stock options.
Patrick Kennedy • 612-673-7926