Former MDC CEO Nadal’s bonus repayment looks like a sweet deal

Share

MDC Partners Inc. made its founder Miles Nadal exceptionally wealthy. We can say this because of Mr. Nadal's sales of $184-million (U.S.) worth of MDC stock since May of 2014, a figure that does not include the generous salary and cash bonuses Mr. Nadal made as the company's CEO.

I write in the past tense, of course, because Mr. Nadal departed from all his roles in the company in July as the company completed an investigation into what it called "improper payments" to Mr. Nadal for expenses and perquisites. Mr. Nadal agreed to pay back $10.5-million to the company, and also agreed to return almost $10.6-million in cash bonuses to MDC Partners.

What's unfortunate, given Mr. Nadal's recent windfalls from shares of MDC stock, is that he is on the instalment plan. While he has paid back nearly all of the perk payments – he is to pay a final $939,000 before the end of 2015 – Mr. Nadal has until the end of 2017 to return his bonuses, and has made just one payment of $1-million in September.

And even more unfortunate, I'd say, is that MDC Partners has now disclosed that its out-of-pocket costs in dealing with the Securities and Exchange Commission (SEC) investigation of this and other matters have reached nearly $13.6-million – more than what Mr. Nadal has agreed to repay in bonuses.

Let us first, however, give MDC Partners some credit. The U.S. Sarbanes-Oxley corporate-reform law of 2002 introduced the concept of "clawing back" executive bonuses in the event of incorrect financial statements due to "misconduct." While the SEC has the power to include clawbacks in its settlements, companies have a mixed track record, at best, in reclaiming compensation from departing executives.

In addition to the paid-back bonuses, as part of its settlement with Mr. Nadal, MDC Partners managed to get him to agree to a "voluntary separation from service without good reason." That meant his departure did not qualify for standard termination benefits. At the time, the company said he was forgoing $27-million in severance. As investors know, far too often executives are allowed to resign under a cloud and still collect a cushy departure package. They are called "golden parachutes" for a reason.

Still, it's fair to question whether MDC Partners achieved enough with its deal with Mr. Nadal, particularly in not collecting the money owed upfront.

With Mr. Nadal's recent stock sales, there seems to be no liquidity issue in paying back his past bonuses. The company, however, agreed to a payment plan in which Mr. Nadal pays $1-million by Sept. 30 and another $1.5-million by Dec. 31 of this year, leaving more than $8-million owed. Of that, Mr. Nadal must pay $2-million by Dec. 31, 2016, $4-million by June 30, 2017, and the final $2,081,605 by Dec. 31, 2017. If the amounts contain any interest for what is, effectively, a loan, that's unclear from MDC Partners' disclosures. And the company declined to answer a question about charging interest, pointing back to those disclosures.

It's also worth noting that while the company's review of potentially improper expense payments went from 2009 through 2014, the amount of bonuses Mr. Nadal agreed to pay back – under $10.6-million — is less than the $11.74-million in bonuses MDC Partners paid him in 2014. Mr. Nadal received just over $30-million in performance bonuses from 2009 to 2014, with almost $26-million of that coming in 2013 and 2014.

I asked MDC whether it had been overgenerous to Mr. Nadal in the terms of the bonus repayment; the company declined to comment. It also declined to forward my questions to Mr. Nadal himself; an attempt to contact him directly was unsuccessful. Mr. Nadal resides in Nassau, Bahamas, where he files his stock-sale papers with the SEC through his company "Platinum Pineapple."

There's indeed a sweet deal here, and it's not for MDC Partners' shareholders.