McDonald’s Corporation Former CEO Easterbrook Departed without “Cause” So Keeps Valuable Stock and Options
At first glance, it might appear that Stephen Easterbrook left his post as CEO of McDonald’s Corporation with peanuts. But a closer look reveals he may keep restricted stock and options worth over $60 million.
On Sunday, the fast-food giant said Mr. Easterbrook would leave following the discovery of a consensual relationship with a subordinate, which violated McDonald’s policy. A filing Monday indicated he would receive a 26-week severance, worth about $650,000 based on Mr. Easterbrook’s 2018 base salary.
The filing also indicated something far more valuable: Mr. Easterbrook was being dismissed without “cause.” Using Sentieo to search public filings, CorpGov discovered details on the implications of such a departure, which indicate Mr. Easterbrook may be allowed to keep a large number of options and restricted shares.
“If the NEO qualifies for favorable treatment (by satisfying the conditions for retirement or ‘special circumstances,’ which includes termination by the Company without ’cause,’ and agreeing to the restrictive covenants and a general release of claims in favor of the Company), the options continue to become exercisable on the originally scheduled dates and remain exercisable for an extended post-termination exercise period,” a filing from April said.
How much are the stock and options worth? Some 80,152 shares have yet to vest. At a price of $188 each, they’re worth about $15 million.
Far more valuable are the options Mr. Easterbrook was granted but haven’t yet been exercised. Using reasonable assumptions including annual volatility of 18.7{efe5d79870c08482e17ab0c97855f89429dac5f22c46026d3ca83573faec2208} (as the company itself does for options calculations), the options are worth over $46 million, bringing his total haul to well over $60 million.
Such an arrangement has some precedent. In 2018, Intel Corporation parted ways with then-CEO Brian Krzanich, who forfeited some benefits, but kept a big chunk of them. “[V}esting of certain of Mr. Krzanich’s outstanding equity awards, which consisted of 87,430 RSUs and 668,274 OSU shares, accelerated pursuant to the pre-existing terms and conditions of our equity plan and his grant agreements,” Intel said in a filing earlier this year.
Others departures were more contentious. “If you recall a few years ago, the ex-CEO of Hewlett-Packard was involved in a situation with a contractor, and he did keep his equity awards but they were cancelled in a subsequent litigation settlement between the manager and the company,” Sentieo’s Head of Research Nick Mazing told CorpGov in an interview. Indeed, the late Mark Hurd, who went on from HP Inc. to be co-CEO of Oracle Corporation, was forced to give up some of his exit package after facing claims he was stealing trade secrets.
It is possible Mr. Easterbrook’s arrangement could raise eyebrows among employees or even politicians seeking populist support. According to company filings, Mr. Easterbrook’s 2018 compensation was 2,124 times that of its median employee. (The median employee was determined to be a part-time worker in Hungary whose income was $7,473).
But for now, it appears that Mr. Easterbrook’s deal is kosher, corporate governance experts say. “Whether one agrees or disagrees, it’s in the contract,” said Professor Charles Elson, Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
McDonald’s didn’t respond to a request for comment from CorpGov.
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