Abbey Chairman to Get $2.5 Million in Merger : Compensation: The contract isn’t much by today’s standards, analysts say. But since he’ll stay on as the new firm’s No. 2 executive, it raises eyebrows.

It surely sounds like a juicy deal.

Abbey Healthcare Group Chairman Timothy M. Aitken expects to pocket $2.5 million if the Costa Mesa company’s merger with Fountain Valley-based Homedco Group proceeds next month. And he gets a three-year contract--at a $370,000 annual salary plus bonuses--to stay on as the newly combined company’s No. 2 executive.

But executive compensation experts say it’s unlikely that shareholders will raise a ruckus over Aitken’s deal, let alone try to block the merger. The reason? By today’s standards, the money involved doesn’t amount to much, said Graef Crystal, an executive compensation specialist at UC Berkeley.

“That’s roughly equivalent to a grammar school child stealing a candy bar from the local store,” he said. “It’s not armed robbery.”

What’s more, experts say, shareholders probably won’t make a stink about Abbey’s compensation arrangement with Aitken because it’s been in force more than two years. “There’s nothing new here,” added David Drake, a senior analyst at Institutional Shareholder Services Inc., a Bethesda, Md., company that advises institutional investors on proxy voting issues.

Which is not to say, however, that Aitken’s ability to pocket a buyout while getting a job to boot isn’t raising eyebrows. Consultants compare him to Norman Augustine, the former chairman of Martin Marietta Corp. who is now president of the merged Lockheed Martin company. Earlier this year, Augustine got an $8.2-million bonus after engineering the company’s merger with Lockheed Corp. Though investors protested the bonus, the merger proceeded and Augustine agreed to give $2.9 million to charity.

Crystal questions, for instance, whether Aitken deserves even a dollar, let alone $2.5 million, when he gets a job for three years too. “We aren’t asking him to leave the company,” Crystal said. “We aren’t cutting off his contract prematurely. We aren’t cutting his salary.”

But Aitken insisted that “there is no heavy-duty gratuitous payment here.”

He said the $2.5-million payment settles Abbey’s obligations to him under terms of his present employment agreement. That contract, signed Dec. 1, 1992, provides him an annual salary of $350,000 until the end of this year. Contract terms provide for a buyout if he has a change in title or if the company undergoes a change in control, he said.

In addition, he said, the payout provides partial forgiveness of a $1.25-million loan Abbey made to him in 1992 to purchase a home in Orange County. Terms of the loan forgiveness were tied to performance measures which he has met since then, Aitken said.

Aitken insisted he’s earned his performance awards. He said that he led the company back from the verge of bankruptcy, attracted $480 million in fresh capital to the firm, and helped boost operating results from a negative $14 million in 1990 to a positive $18 million in 1994.

Consultants disagree about the appropriateness of Aitken’s buyout and continuing employment.

Rhoda Edelman, managing director at Pearl Meyer & Partners, a New York executive compensation consulting firm, said it’s common for a company to buy out an executive’s contract when a merger prompts a change of control.

Though it may be less common for a company to pay a large sum to persuade an executive to stay on after a merger, she considers Aitken’s future salary reasonable.

Noting that the merged firm will have revenues in excess of $1 billion, Edelman said, “I don’t think being paid $370,000 as the No. 2 guy in a $1-billion company is excessive.”

Analysts note too that the $2.5-million payout, however high it seems, is actually less than the amount provided for by Aitken’s contract.

Calculations based on terms described in the proxy suggest that if either the company or Aitken ended his contract with Abbey mid-term, he could have gotten as much as $3.3 million. Specifically, he’s supposed to get nearly three times his $350,000 salary plus an amount that’s double his 1993 bonus of $1.14 million.

Drake, the analyst at Institutional Shareholder Services, said it appears that Abbey’s board of directors “were able to negotiate down what he might have gotten if you took his contract to the letter.”

Drake added, however, that Aitken would gain to some extent by having a lump sum payment now because he has the opportunity to invest the money.