The Frenchmen would be able to "vest", or cash in, all his share options through a change of control clause in his contract, regardless of whether EMI had hit its performance criteria. This would be triggered if US rival Warner Music, led by chairman Edgar Bronfman Jr, bought its larger British rival.
Shareholder corporate governance watchdog Manifest said most companies had phased out these arrangements allowing executives to cash in their options unconditionally.
Last week EMI, which tabled its first takeover bid for Mr Bronfman's company in May, stunned the City when it revealed that Warner Music itself had made a £2.5bn counterbid for the British company last month.
Analysts say it is not clear which company will prevail, but insist a tie-up is likely.
Mr Bronfman would not walk away empty-handed if he lost the takeover dance to his EMI counterpart, Eric Nicoli. Aside from stock options, he owns about 11 per cent of Warner Music - which had a market value of £261m at Friday's close.
Mr Levy would receive a cash payout of £3m if his contract with EMI was terminated. Based on a successful renewed offer for EMI marginally above its original 320p-per-share bid, the head of EMI Music would make at least £9.6m profit by exercising 11 million of his 20 million share options.
If Warner Music buys EMI, it has been rumoured that the US company would want to employ Mr Levy to head up its own music division.
When executives whose contracts have been terminated find new employment within their notice period, their old companies usually offset the new salary against their compensation package. But in its annual report, EMI admitted it had waived this right. This means that Mr Levy could walk into a new job and still receive the £12.5m windfall.
Mr Nicoli, Mr Levy's boss, stands to gain little more than a maximum £2m from a successful Warner Music bid.
EMI Music owns labels including Blue Note and Parlophone and includes groups such as Gorillaz on its roster. Music executives tend to be better paid than non-music industry peers because of the specialised nature of the industry.
Bankers acting for the two companies are thought to be pausing before their next move. Warner Music says its rejected 320p-a-share offer is still on the table in the unlikely event that EMI's board, if it comes under pressure from shareholders, decides to do a U-turn.Reuse content