Just last week, Léo Apotheker was shown the door after a tumultuous 11-month run atop Hewlett-Packard. His reward? $13.2 million in cash and stock severance, in addition to a sign-on package worth about $10 million, according to a corporate filing on Thursday.
At the end of August, Robert P. Kelly was handed severance worth $17.2 million in cash and stock when he was ousted as chief executive of Bank of New York Mellon after clashing with board members and senior managers. A few days later, Carol A. Bartz took home nearly $10 million from Yahoo after being fired from the troubled search giant.
A hallmark of the gilded era of just a few short years ago, the eye-popping severance package continues to thrive in spite of the measures put in place in the wake of the financial crisis to crack down on excessive pay.
Critics have long complained about outsize compensation packages that dwarf ordinary workers’ paychecks, but they voice particular ire over pay-for-failure. Much of Wall Street and corporate America has shifted a bigger portion of pay into longer-term stock awards and established policies to claw back bonuses. And while fuller disclosure of exit packages several years ago has helped ratchet down the size of the biggest severance deals, efforts by shareholders and regulators to further restrict payouts have had less success.
“We repeatedly see companies’ assets go out the door to reward failure,” said Scott Zdrazil, the director of corporate governance for Amalgamated Bank’s $11 billion Longview Fund, a labor-affiliated investment fund that sought to tighten the restrictions on severance plans at three oil companies last year. “Investors are frustrated that boards haven’t prevented such windfalls.”
Several years ago, the Securities and Exchange Commission turned a brighter spotlight on severance deals by requiring companies to disclose the values of the contracts in regulatory filings. More recently, the Dodd-Frank financial reforms required that public companies include “say on pay” votes for shareholders to express opinions about compensation — including a separate vote for golden parachutes initiated by a merger or sale.
Yet so far, few investors have gone to battle. Only 38 of the largest 3,000 companies had their executive pay plans voted down, according to Institutional Shareholder Services. Even then, the votes are nonbinding.
Severance policies typically call for a lump-sum cash payment, the ability to cash out stock awards and options immediately instead of having to potentially wait for years. And that’s not counting the retirement benefits and additional company stock that executives accumulate, which can increase the total value of their exit package by millions of dollars.
Some critics believe investors have become inured to the hefty payouts. In addition, the continuing financial crises in Europe and the United States have pushed compensation into the backseat on the shareholder agenda.
“People are preoccupied with the bigger issues,” said Frederick Rowe Jr., a hedge fund manager and president of Investors for Director Accountability which has sought to curb excessive pay.
The Obama administration, meanwhile, seemed to lose its bully pulpit for compensation reform after most of the nation’s biggest financial companies repaid their government loans — and Kenneth R. Feinberg, its tough-talking pay overseer, moved on to tackle other issues.
Federal Reserve officials flagged golden parachutes as a concern when they began a compensation review almost two years ago, but their inquiry was limited to large banks — not all large companies. The findings of the review are expected to be made public in the next few weeks.
Over the last year, regulators have been pressing corporate boards to draft policies denying huge severance payouts to senior executives if the firm teeters on collapse. That still leaves wiggle room for managers to score big if they merely perform poorly.
Article source: http://feeds.nytimes.com/click.phdo?i=5566ab227658c704bc3be9c7ddb11edb
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