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What can be done about lavish severance packages for chief executives who made a mess of their companies and were forced out after share prices tumbled and blameless employees lost their jobs?
It has regrettably become common in recent years for executive severance to be negotiated during the hiring process, when a corporate board of directors is trying to recruit a star chief executive officer. The severance agreement becomes part of a contractual commitment that is often unrelated to the circumstances of the executive's eventual firing. It's legally difficult for the board to void the contract. On occasion, though, shareholder suits have resulted in a reduced severance package.
To complicate matters, severance is often structured as deferred compensation for an executive's earlier successes, before things fell apart. Discredited CEOs always argue that they were not overpaid at termination, considering the rise in share price they achieved for stockholders during the good times.
My solution? Companies shouldn't make severance commitments when hiring executives that might later haunt them, especially if the CEO is terminated for cause. Executive-compensation consultants (who, by the way, played a big role in pushing up CEO pay) warn that this would make it difficult for boards to hire top talent. Nonetheless, I think it's a reform that is long overdue.
An ethical CEO should be embarrassed about receiving a lavish severance package after his or her errors of judgment caused severe distress for shareholders and especially for employees. (Then again, CEOs are not usually noted for their humility.)
To do the right thing -- and also to defuse public condem-nation and head off shareholder suits -- terminated CEOs and other top executives should voluntarily decline a large portion of their severance. Or, even better, they could offer to give most of their undeserved windfall to rank-and-file employees who lost jobs as a result of their mismanagement.
POSTED BY: Greg (May 12, 2008 07:02 PM)
...CEOs who have caused untold damage to companies, employees, and shareholders should be forced, by Federal Law, to relinquish their salaries, bonuses, and severance. If their actions were obviously motivated by a short term self-interest payday...they should be imprisoned...This kind of systemic corruption that reaches directly to a CEOs wallet will only end when the CEOs are held financially and personally accountable.
POSTED BY: JD (May 12, 2008 07:43 PM)
...(M)uch of what is reported as "severance"...is just forcibly cashing out old stock options. In short, back pay from years ago is being called severance. I don't think any reasonable people believe that an employer should be able to take back pay from years ago when they fire you....Much is made of Stan O'Neal's compensation from Merrill Lynch, but no one points out that Merrill made as much in profit in 2006 as it lost in 2007, and it made profit in his previous years too. Overall, they benefited from his tenure, if profit is any measure.
POSTED BY: Van D (May 12, 2008 09:27 PM)
When an employee fails to do his or her job properly, he normally is terminated, the same should apply to CEO's.They were hired to do the job,if they fail, it's outa here buddy,no bunuses,golden parachutes. NADA!!
