Something should be done. Seems it has been more lucrative to be a poor performing CEO than a successful one. If you look at the compensation packages of CEOs of the most successful retailers (e.g. Publix), you will find that their pay is more realistic. Generally, the bigger the loser, the bigger the paycheck.

People at every level shy of having an officer’s title have to hustle and scramble to qualify for meager bonuses and ongoing employment opportunities. Meanwhile, departing executives are rewarded in leaving.

It’s astonishing, really. And we’ve yet to hear an argument in favor of this kind of executive compensation package that would change our opinion.

Nothing resounds like excess today
In power, perks or severance pay.
So for a modern gentlemanly vice,
Corporate boards give into avarice.
The current Coca-Cola vote won’t pass;
Directors, too, are a rewarded class.

But the issue has been raised and that’s good
Even if it’s from a saintly brotherhood,
Who compound for sins they are inclined to
By damning those they have no mind to.
Some day this tsunami will fade away
And permit a system of fairer pay.

In many cases, the CEO is also the Chairman of the Board. What kind of accountability is that? It seems to me that there should be some sort of regulation that prohibits that, but that’s another story and another conversation. In short, the idea that an executive severance package should be any different than any other employee is ridiculous. Remember here, we’re talking about severance, not compensation. What has happened is that, in the corporate culture today, senior executives have come to believe that they are one in the same. They are, in fact, not the same and should not be the same. The idea that you can’t attract quality executives without such a package at sign in is simply ludicrous. Imagine the logic we’ve been convinced to believe. It goes something like this, “We agree to pay you huge dollars whether you perform or not.” There is no sound business decision for anything like what exists today. Even more shocking is that shareholders haven’t cried louder yet. The only trouble is, in many cases,… Read more »

I think the idea is great! These ridiculous senior management executive severance packages have to go. I am a good capitalist but all the greed is just getting out of hand! As an investor, it would be refreshing to invest in companies that have some good and simple rules like the 2.99 times salary. I also think Boards and Sr. Executives are too close and that also needs to be looked at more closely. After all, they are taking money away from stockholders when they do this!

As an investor, I am not in favor of even the 2.99 x pay factor. If the manager is going to a better job, why would you pay him?? If the manager was doing a poor job, why would you pay him??? I bought Chrysler stock when Lee Iococa said he would work for stock only, no salary. Lee did quite well AND so did I. He was bringing something to the table and not looking for an exit package if he failed. I am a board member.

I find the combination of yesterday’s discussion on minimum wage and this article on severance packages two interesting perspectives of individual compensation.

Yesterday, we commented on a $2.10 increase in the minimum wage over 26 months. This equates to about $4,000 a year for someone who is putting in 40 hours every week to benefit their employer. In this discussion, we are talking about an individual who will no longer be contributing to his company but will receive $9.2 Million plus another potential $5.2 Million and a retirement benefit of $800,000 a year 13 years from now because he was disappointed he didn’t get a promotion. I can certainly understand why the Teamster’s fund might question the payout.

All managers ultimately work for the stockholders of their employer. It is important for the Board of Directors to remember whom they represent. Limiting severance benefits to 2.99 times their compensation certainly doesn’t seem an unreasonable cap on management compensation, especially when the decision to leave is the manager’s.

I agree that these CEO and board relationships are just too cozy. The foxes are in charge of the hen house and it is disgusting. Greed may be the American way, but enough is enough. Why any company feels that they have to grant such ridiculous severance agreements is beyond me. Maybe in a case where a company is in such bad shape that they can’t attract any real talent to turn it around there is an exception, but usually it just makes it worse and more expensive. Senior management and boards are only interested in one thing, and that is themselves, in far too many cases. The rule of their decision making is, “What’s in it for me?” With this mind set, how can you expect any different outcome? If Coke passes this, which I seriously doubt that they will, it could be the start of a new wave of responsibility among corporate boards. That would be a true breath of fresh air. The proposed standard of 2.99 times is way too high, but… Read more »

There might be a short term impact as the number of candidates for the highest level jobs dwindled slightly but I think what would be left would be the people more interested in doing the job well than worrying about how much they could walk out with if they didn’t do the job well. Having a reward package for failure is hardly an incentive to do the best you can. It’s about time shareholders got angry enough to insist that their rights and viewpoints were respected. The company relies on their investment to survive and grow; the least they can do is protect the investment.

I don’t think there is going to be an easy answer for this problem. If executives are not allowed to negotiate the severance package they want when being hired, they’re just going to ask for a bigger salary or more stock options up front instead. The whole point of severance packages is to REDUCE the salary and option grants needed to hire these executives in the first place.

Sounds like a classic case of “pennywise, pound foolish” on the part of the shareholders to me.

If they’re really outraged, they should just demand compensation limits in general, rather than get involved with specific forms of compensation.

I’d love to know what justification the board is giving for rejecting the proxy.

The standard answer is that with such ‘handcuffs’ on severance, the company will be at a disadvantage when looking for qualified candidates for the CEO position.

I’d posit that candidates who will only take the position with the understanding that they will be showered with money on their way out are not the sort of candidate the board has a fiduciary duty to find and hire.

Why is the board rejecting the proxy?

The idealists have come out. In my opinion these executive positions are different from other positions. The executives many times are coming into difficult positions and are asked to change the direction and culture of a poorly performing company. THAT IS VERY different compared to the tasks of others in the organization. I want that executive 100% focused on getting a company into a better strategic position and with better financial performance. I don’t want him worried about other job offers or what might happen if he can’t redirect the company.