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Oklahoma City - (Corporate Wire) - Note to any of you CEOs out there who are negotiating departure packages: Make sure your options aren't mostly underwater before you exit the building.

Charles Prince, who resigned recently as chief executive of Citigroup after saying the bank would need an additional $8 billion to $11 billion in subprime-mortgage-related write-downs, has a pension of $1.7 million, $1.3 million in options that are not underwater and $28 million in deferred compensation he takes with him, a total of $31 million. He has $33 million more in Citigroup shares he owns outright. That adds up to a total going-away package of $64 million, assuming the bank doesn't give him any extra going-away money.

Citigroup has not yet disclosed what Prince's severance will be.

That's far less than others. Take rival chief executive Stanley O'Neal, who "retired" from Merrill Lynch last month after a similar blowup there, though with a hefty $160 million paycheck, most of it accumulated in an employee pension plan that is available to many other Merrill employees. That includes $30 million in retirement benefits and $129 million in stock and option holdings.

Prince, in contrast, had a very small $1.7 million pension, while much of his pay over 29 years at the company has come in the form of stock-option grants, and the majority of those have strike prices that are above the current stock price, meaning they are worthless for now.

That could certainly change, however. The beauty of this scenario, at least as far as Prince is concerned, is that a new chief executive could come in and clean up the place and send the stock price soaring, enabling Prince and other ousted executives to cash in on their option grants before the deadline two years from now.

Academics from Northwestern University's Kellogg School of Management researched the subject of severance and concluded in September that it can be an incentive for risk-taking. The value of employee stock options "increases when companies' stocks are more likely to move significantly higher," wrote Thomas Lys, Tjomme Rusticus and Ewa Sletten. "The expected value of severance pay, on the other hand, increases when companies' stocks are more likely to fall and CEOs are more likely to lose their positions."

System encourages risk-taking

The pattern is not unique to this decade. In the late years of the go-go 1990s, several financial chief executives raised eyebrows for taking away huge severance packages after driving their companies into the ground on risky strategies.

Stephen Hilbert of Conseco for example, took home an estimated $72 million even though the value of the company's stock during his tenure sank from $57 to $5 a share and the company ultimately ended up bankrupt. Conseco's misstep, on Hilbert's watch, was buying home-finance company Greenpoint Financial just before the last great subprime-lending blowup.

Then there was Frank Newman, the chief executive of Bankers Trust, whose aggressive push into technology banking and lending, coupled with an unfortunately large position in Russian government bonds in the summer of 1998, brought the investment bank to the brink before being rescued in an acquisition by Deutsche Bank. He walked away with $55 million.

Philip Purcell left Morgan Stanley after a shareholder revolt against him in 2005, and took with him $43.9 million plus $250,000 a year for life.

And the winner is . . .
Richard Grasso, who headed up the New York Stock Exchange, took $140 million in deferred compensation and the disclosure of that payment sparked a furor that led to his departure. The pay also provoked an investigation and lawsuits, which are still being worked out. Grasso has vowed to fight.

Douglas Ivester of Coca-Cola took $120 million when he stepped down in 2000 in his mid-50s. The departure was deemed a "retirement," but Ivester had presided over a period of stagnant growth, declining earnings and bad publicity.

The big winner in the severance derby: Robert Nardelli, who walked away from Home Depot with $210 million. He fixed up the home-products retailer using techniques he learned as an executive at General Electric but by 2006, he was starting to seriously irritate shareholders. The final straw was when he told the board to skip the annual shareholder meeting and prevented shareholders from speaking for more than a few minutes. He was ousted in January 2007.

Supersized CEO exits Executive Company Walk-away pay

Stanley O'Neal Merrill Lynch $160 million
Philip Purcell Morgan Stanley $43.9 million
Richard Grasso New York Stock Exchange $140 million
Douglas Ivester Coca-Cola $120 million
Robert Nardelli Home Depot $210 million