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With apologies to John Milton and Gary Wills – two of my favorite people.
The New York Times had another article on CEO pay today (at http://www.nytimes.com/2011/09/30/business/outsize-severance-continues-for-executives-even-after-failed-tenures.html?pagewanted=2&_r=1&ref=todayspaper) – by far the most written about corporate governance topic. Today’s story was particularly about excessive pay for terminated executives – what the article calls “pay for failure.” Two of the most recent examples, it says, are Leo Apotheker, formerly of HP, and Robert Kelley, formerly of BNY Mellon, who got $13.2 million and $17.2 million, respectively, upon being fired.
The article also refers to two examples from the last decade – Robert Nardelli, formerly of Home Depot, and Hank McKinnell, formerly of Pfizer, each of whom got over $200 million, according to the article. Don’t let the door of the vault hit you on your way out.
It seems like you can’t read an article about CEO compensation – at least with respect to American companies – without seeing Mr. Nardelli’s name.
The article says that “Perhaps the biggest reason that golden parachutes persist is that corporate boards hire superstar chief executives, rather than groom strong managers inside the company for the top job. That gives outsiders a stronger hand to demand all kinds of upfront stock awards and lucrative severance deals when they are hired.” I think that was true in Mr. Nardelli’s case. He was at GE and in the running for the top spot when Jack Welch was retiring. When Welch pick Jeff Immelt to succeed him, it seems to me that Mr. Nardelli’s consolation prize was Home Depot – then-HD board member and co-founder Kenneth Langone also served on GE’s board. Who’s happier now – Jeff Immelt at a struggling GE, the subject of withering shareholder criticism – or a retired Bob Nardone with $200 million in the bank?
Anyway, the article makes a nice point that, while adieu packages a la Nardelli and McKinnell are gauche (I’m trying to be suave – savvy?), eight figure termination packages seem to be the norm (hey, can you guys hire me as CEO for a couple days for free, then fire me? Please?). And shareholders don’t really seem to mind. Although the link between the two issues isn’t direct (or even existent?), the article cites an ISS study saying that shareholders at only 38 of the largest 3,000 companies to have say-on-pay votes said no.
I don’t think this is the shareholders’ fault, at least not always. The SOX rules requiring fuller disclosure of compensation practices have resulted in more words in DEF 14As but less clarity. I’d rather have a rule requiring publication of the compensation committee’s criteria and/or employment contracts- not description and explanation as is now the case. That way shareholders’ say-on-pay votes could be more objective.
And remember shareholders – only you can prevent Bob Nardellis.
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