September 16, 2008
Companies Cut Holes in CEOs’ Golden Parachutes
– Mike Kesner, Deloitte Consulting
Yesterday, the WSJ ran an article entitled “Companies Cut Holes in CEOs’ Golden Parachutes” which included an example of one company that cut back on the traditional severance pay model. The company has employment agreements with top executives that were recently signed prevents the executives from getting severance in cases of “poor performance.” [Note from Broc: This WSJ article was particularly timely given the news that the FHFA intends to block severance payments to Freddie Mac’s and Fannie Mae’s ousted CEOs (but as this Washington Post article notes, they’ll still get plenty in retirement pay.]
According to the article, the top executives were just being hired by the company and they didn’t object to the board’s intent (plus, their predecessors hadn’t had employment agreements at all) – the board hired a compensation consultant and then the company’s directors and executives had a “lively discussion” on how to define poor performance. The end result was that the directors and executives agreed on performance goals, including financial targets like earnings per share and revenue growth as well as individual job objectives. Hopefully, this type of discussion has been – and will continue to be – had in many boardrooms.