Ford's New CEO Gets $18.5 Million Sign-on Cash

DETROIT, Sept 8, 2006; Poornima Gupta writing for Reuters reported that Ford Motor Co. would pay veteran aerospace executive Alan Mulally $18.5 million to join the troubled automaker as its new chief executive in addition to an annual salary of $2 million.

The one-time payments include a hiring bonus of $7.5 million and $11 million to offset the compensation Mulally gave up for ending his tenure as head of Boeing Co.'s profitable commercial plane division, Ford said in a filing with the U.S. Securities and Exchange Commission.

Mulally, 61, was also granted stock options worth about $10.5 million and $5.26 million in restricted stock grants, according to details provided by Ford.

A clause in Mulally's contract also entitles him to a payment of $11 million if Ford undergoes a change in control or he is let go for any reason other than "cause" before 2011, Ford said in its regulatory filing.

Ford has also agreed to waive the vesting requirement on Mulally's stock options and restricted stock grants in such a case. The SEC filing did not specify what would constitute a cause for termination under the contract.

At Ford, Mulally will be paid a base salary of $2 million per year. For the remainder of 2006, that works out to a salary of about $650,000, the company said.

The details of the compensation package follow Ford's surprise move to name Mulally to replace Bill Ford Jr. as CEO of the No. 2 U.S. automaker. The change in leadership comes as Ford is struggling to reverse mounting losses and dwindling U.S. market share.

At Boeing, Mulally was among the top paid executives in 2005 with a package of about $9.96 million. That included a $7.58 million long-term incentive payout in addition to his $825,000 salary, a $736,300 annual bonus, plus restricted stock awards and other benefits.

By comparison, General Motors Corp. Chief Executive Rick Wagoner made $5.5 million in 2005, which included a salary of $2.2 million and stock options worth about $2.9 million, according to regulatory filings.

Bill Ford, whose great grandfather founded the company 103 years ago, was not paid a salary since taking over as chief executive in 2001. He was granted total compensation, including stock options and stock grants of $13.3 million in 2005.

Ford, who will stay on as executive chairman, has agreed to forego any further compensation until the company's auto operations return make sustained profits, spokeswoman Becky Sanch said.

Sanch said Mulally's compensation package was based on the "competitive environment for world-class talent."

"The (compensation committee of Ford's board) believes the package is fair and reasonable given his qualifications and the magnitude of the position, she said.

PERFORMANCE-BASED BUMP

Ford granted Mulally 600,000 restricted stock units in 2006 that vest in equal installments over three years. Based on Friday's $8.77 per share closing stock price, that grant was worth an additional $5.26 million.

Mulally will also be granted options on 3 million Ford shares vesting over three years. The options are priced at $8.28 cents per share, Ford said. In addition, Mulally will also receive an option on 1 million shares based on the performance of Ford's common stock. Mulally would be entitled to the full option grant if Ford stock recovers to at least $30 per share and stays there for 30 trading days, according to the SEC filing.

The total value of those grants is about $10.5 million according to the Black-Scholes model for evaluating the present value of options, Ford said.

For 2007, Ford agreed to give Mulally a restricted stock grant worth at least $6 million if he meets all of his targets as determined by the company's board. He will also receive a stock option grant worth at least $5 million.

Ford recruited Mulally following a $1.44 billion first-half loss and amid a sweeping restructuring plan to cut 30,000 jobs and close 14 plants to restore profits in North America.

Ford's board is scheduled to review an accelerated cost-cutting plan next week.

At Boeing, Mulally was credited for setting in motion a number of changes that put the aerospace company on track to overtake its arch-rival Airbus after a five-year comeback.

As part of his package, Mulally has the option to live in temporary housing in the Detroit area for the first two years of his employment at company expense.

Ford said Mulally would be required to use the company's aircraft for personal travel because of security concerns. It said he would be able to bring his family and friends on any trips he took at company expense.