Reward failure
Wallace Malone is retiring as Vice President of Wachovia Corporation with a sweet and juicy starting package worth at least $ 135 million. This amount will probably be increased (increased) so that the poor do not have to worry about paying any income tax on the $ 135. Incredible, even for doing a good job, although one could argue morally in favor of such. pay. But what about those who fail?
What about the Magic Kingdom story of Walt Disney and Michael Eisner, the former CEO who once encouraged the potential payment of a $ 140 million golden parachute for Michael Ovitz, his friend who lasted only 14 months as his deputy? Eisner himself was forced to leave office last year with a package worth nearly $ 24 million excluding a $ 300,000 lifetime annuity. In fact, most severance packages of this nature also contain a dazzling array of other exciting benefits: from the use of private corporate jets to lucrative consulting contracts, use of secretaries, lifetime office space, club memberships. field and financial planning assistance. There are countless benefits that executives seem to enjoy in “forced retirement” at the expense of shareholders.
Increasing severance packages awarded to laid-off or departing executives (negotiated in upfront employment contracts) are part of the growing perception that total compensatory reward is out of sync with, or lack of, performance . After all, if it is immoral to punish large corporations (like Wal-Mart) for their financial success, it should be just as immoral to improperly reward top executives of such corporations when they are fired for poor performance.
What about Stephen C. Hilbert, the former CEO of Conseco, who nearly bankrupted the company but received $ 47.1 million in severance pay for his efforts? Too bad Carly Fiorina, who left Hewlett-Packard with a tarnished reputation. Fortunately, his departure package eased his pain; it was worth about $ 21 million. “This is nothing more than the normal severance we give to senior executives,” says HP company spokesman Mike Moeller. How sweet is that? Doug Ivester, former president of Coca-Cola, left under a similar dark cloud, but to bring in some sunshine, his severance came close to $ 120 million candy. Poor Jill Barad, the former CEO of Mattel, walked away with $ 55 million after being fired for her poor performance. Robert Annunziata stepped down as CEO of Global Crossing in just one year with $ 15.9 million. L. Dennis Kozlowski of Tyco and New Hampshire Infamy was in time to receive up to $ 117 million before being charged and convicted of corporate wrongdoing. Incredibly, Tyco agreed to pay a $ 44.8 million severance package to Mark Swartz, his former chief financial officer, even while he was being investigated by a grand jury in New York who later indicted him on criminal charges (Drury, Jim, “It Pays to Fail “, September 16, 2002, http://www.chiefexecutive.net). The deal, incidentally, was signed by two members of Tyco’s compensation committee, one of whom was Stephen W. Foss, former chairman of the NH Port Authority, who later ran into his own serious wrongdoing issues ( Feingold, Jeff, “In the wrong place at the wrong time”, NH Business Review, October 17, 2002, 14b).
Franklin Raines was ousted as CEO of Fannie Mae after just five years, but will receive a $ 1.3 million a year pension for life for his poor performance, although the pay is being disputed. Nice pension for only five years of work. The chairman of the New York Stock Exchange, Richard Grasso, “resigned” on September 17, 2005, at an emergency meeting of the New York Board, which voted in favor of his removal. The forced resignation came just three weeks after the same board disclosed his previous payment of $ 140 million in deferred compensation and retirement benefits to Grasso, at the time praising him for his “outstanding leadership.”
And the pace continues, with other examples of corporate scoundrels sipping at the water trough, examples too numerous to cite in this column. These episodes seem to be classic examples of how powerful people can bend or rewrite the rules to suit the games they play and, in some way, rationalize them.
No one is arguing that traditional and competitive severance packages are not important or necessary, but many of the excessive ones are triggered in incomprehensible and ironic ways when executives are fired for poor performance. These types of payments reflect a cruel disregard for those in office cubicles or on factory floors, most of whom are simply shown the door when they are fired. Getting others laid off and getting huge rewards has become a hot topic of scrutiny, particularly in recent years that some have called the “corporate greed” period. In fact, these juicy packages often indicate that a particular board of directors is not overseeing the corporate cash register or company management closely enough, or looking out for shareholders, despite the Sarbanes-Oxley Act, which emerged in 2002 as a result of the public’s decision. protest corporate scandals.
Now, if executives are paid more for high performance because their compensation is supposedly tied to performance, then logic dictates that they should receive less in compensation for poor performance. Why should a top executive beat himself to perform well when he can end up with more money simply working toward failure? Why not manipulate the circumstances so that you can be rewarded for failure? It is not unusual for some executives to move from one company to another, leaving each to “pursue personal interests” but with generous compensation for their serial failures. Eventually, if they fail enough times, they can end up with a good chunk of cash that can then be annulled for a comfortable retirement in Sedona, Palm Beach, or Telluride, or perhaps all three.
Over-severance was just one of many symptoms of the corporate accounting scandals that occurred between 2001 and 2003. Enron is seen by many as the model for this period, although technically the jury is still out (sorry for the pun). If so, it is noteworthy that only three people, James Chanos, Jonathon Weil, and Bethany Mclean, spoke out against Enron from the start. Perhaps the real question to consider is, where were the others? And where are they now with regard to excessive severance pay? Rarely have so few been paid so well to do so little for their companies, shareholders and employees.
“If the ethics is bad at the top, that behavior is copied throughout the organization.” –Robert Noyce, inventor of the silicon chip