Ensuring soft landings for departing CEOs
On top of big equity grants, many chiefs will get severance if they are fired. Critics call it illogical; backers say it's needed to lock in talent.
By Kathy M. Kristof, Times Staff Writer
February 11, 2007
If Qualcomm Inc. Chairman Irwin Jacobs were to be fired from the San Diego technology company tomorrow, he still would reap $354 million from company-granted stock and stock options.
Oracle Corp. co-founder Larry Ellison also wouldn't have to pinch pennies if he were let go — he has rights to buy stock valued at $493 million.
But the California executive best prepared for a forced departure is Apple Inc.'s Steve Jobs, who would take with him an estimated $538 million in stock that he gained full rights to in 2006.
Skyrocketing executive pay is an old story, but recently corporate watchdogs have been homing in on the multimillion-dollar packages collected by corporate chieftains on their way out. The amounts involved can turn forced departures into fat paydays.
The issue was underscored by the recent resignations of Robert Nardelli from Home Depot Inc. and Bruce Karatz from Los Angeles-based KB Home. Both left their jobs under fire but walked away with stock and severance packages valued at $210 million and $175 million, respectively.
President Bush picked up on the issue recently, telling a Wall Street audience Jan. 31 that corporate boards should ensure that executive pay is based on performance. But lucrative severance deals, some say, often amount to pay for nonperformance — and are no longer needed in an era when chief executives can pile up tens of millions of dollars in stock in just a few years.
"It's a case of using both a belt and suspenders," said Patrick McGurn, executive vice president of Institutional Shareholder Services, which advises companies and investors about governance issues. "They are getting a 'golden hello' on the way in, millions for their work and downside protection on the way out."
Defenders of the status quo say the rich packages reflect a competitive market for top executive talent.
"You look at contracts of other CEOs and everyone has a severance agreement," said Julie Sheffet, a compensation consultant with Johnson Associates in New York. "It's the cost of doing business."
Executive salaries are disclosed to company shareholders in annual proxy statements and are widely reported. But the full terms of employment agreements are filed with federal regulators only at irregular intervals and generally draw less attention.
Working with Corporate Library, a Maine-based research firm, The Times examined employment agreements at the 67 California companies that are part of the Standard & Poor's 500 index of blue-chip stocks.
Together, these leaders have accumulated rights to stock and stock options valued at $3.9 billion, averaging $57 million per CEO, the review found.
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http://www.latimes.com/business/la-fi-execpay11feb11,0,3973567.storySo....if recruting top talent is so important, why would one need to plan to pay them mucho $$$ if they get fired? Isn't that admitting that they really aren't that great in the first place? Kind of also an incentive to not try hard to do a good job, either. Wish I could get that deal...