The Advisors' Blog

In recent days, we have been inundated with sensational coverage of lucrative benefit packages to be paid to the estates of senior executives upon their death. These so-called “golden coffins” are generally contractually stipulated arrangements that range from salary continuation and life insurance payments to accelerated vesting of equity, often a big-ticket item for long-tenured executives, and (believe it or not) even post-mortem car allowance payments.

The discovery of these spectacular death benefits may be front page news, but their existence dates back to prehistoric corporate times. The recent changes in SEC disclosure rules on executive pay have forced companies to very publicly reveal the outsized deathbed gifts being lavished on top of the giant salaries, as well as panoply of expensive and often embarrassing perks.

These egregious types of executive pay arrangements are yet another example of how times are changing in the world of corporate governance. It also seems that some of the most striking examples in recent media coverage are the result of legacy deals cut many years ago, during the days when smoke-filled rooms may have obscured the objectivity of executive compensation decision making that may very well have been based on well intentioned business or estate planning goals which shaped senior executive employment contracts.

It should be noted that Compensation Design Group, Inc. (CDG) doesn’t often see these types of benefits, nor would we expect to see them in today’s senior executive contracts. In fact, we find ourselves in the midst of an inevitable slow-moving, high inertia trend towards overall belt-tightening of executive contracts. Severance multiples are declining, restrictive covenants are far more common, and compensation arrangements are written to be clearly defined and easily understood. Most importantly, the provisions in fairly designed executive contracts are able to withstand the test of reasonableness necessitated by proxy disclosure, as well as the public outcry of myriad interested parties.

Increasing regulatory oversight, congressional hearings, SEC disclosure, media attention, and rapid changes in corporate governance guidelines, are shining a white-hot spotlight on these types of executive compensation, and, on a go forward basis, directors will need to justify any benefits and perquisites given exclusively to senior management.

Consider Brian L. Roberts, the CEO of Comcast. Should Mr. Roberts be so unfortunate as to die while in office, his life would end, but his salary would continue. In fact, it would continue for five full years after his death, and yes, during that period, he would also collect his annual bonuses.

James M. Bernhard Jr., CEO of the Shaw Group has similar arrangements in his contract. He gets an extra $17 million dollars in exchange for a promise not to compete with the company for a period of two years following termination of employment. The payment is due even if Mr. Bernhard dies while on the job. No one quite knows how he is going to compete from the grave, but if he can do it, he’ll be forever known as “Lucky Jim”.

When XTO Energy CEO, Robert R. Simpson, kicks the bucket he’ll find that his pail is filled with the proceeds from a $3 million dollar insurance policy. It’s a skimpy reward – even for a dead man – but don’t worry about Bob. Had he died on December 31 of last year, he could have also taken a $111 million “bonus” with him to the grave, plus $20.5 million in instantly vested shares, plus – let’s be fair here – $4.4 million in salary. And, if you think you can’t take it with you, Simpson’s death triggers an additional $158,400 payment listed as a “car allowance.”

Hey, fashionable as it may be, you don’t expect the CEO of XTO Energy to drive through the Pearly Gates in a Toyota Prius, do you?

Eugene M. Isenberg, CEO of Nabors Industries, has himself lined up for over $275 million dollars as his last day payday in this world – an amount that is actually more than the entire 2008 first quarter income for Nabors. That pot of gold at the end of the rainbow must be looking pretty good to Isenberg who is 78 years old. The concept of making more than a quarter of a billion dollars simply for giving up breathing must be very attractive. Fortunately, Isenberg received over $500 million in compensation from 1992 to 2007. That probably took the edge off all that heavy breathing he had to do.

Even for an executive pay consultant, there’s a lot not to like about golden coffin deals. Are we outraged by these “bad example” CEOs running amuck while the American economy is running aground, making our jobs as professionals terribly difficult, putting all of the incredibly hard working CEOs and their boards of directors in a bad light, or are we just angry and upset because they make more dead than we ever will when we’re alive?

Defending significant payments to the dead has not been easy for corporate compensation committees – or the boards that they sit on. Most companies defended their golden coffin practices as “an appropriate way to take care of an executive’s family after an unexpected death” however; they also noted that those benefits were “negotiated as part of an executive pay package that has many components”.

Note to our readers: If you earn less than $50 million a year, alive or dead, don’t even try to understand these “executive pay package components.” They’re way beyond you. You probably don’t even understand why it’s necessary to shovel on the six and seven figure golden coffin perks to retain a top executive who is six feet underground. As in “I don’t care if Jim is dead. I don’t want him working for the competition!”

By now, I’m sure you’ll agree – it’s definitely time to start holistically reviewing your company’s executive contracts for such provisions.

We could rant and rave over these terrible executive pay provisions, but I have a better idea. The next time you get your annual review, and your supervisor dangles a 4% raise before your red, swollen eyes, ask if you’re worth more to the company dead or alive. Considering the cost of all your shortcomings, company management will probably be glad to double or triple your salary if you add “a quick painless death” to your goals and objectives.

Maybe you really can’t take it with you, but with the pittance they’re paying you to stay, you might as well try.

– Frank Glassner, Compensation Design Group