Departing CEOs Given Pile of Money To Land On

February 27, 2003 (PLANSPONSOR.com) - Departing Chief Executive Officers (CEO) received exit packages in 2002 and 2001 that averaged $16.5 million.

The “golden parachutes” ranged from a potential high of more than $82 million paid for Robert Nardelli to leave Home Depot, down to $1.4 million paid to Carl Yankowski when he left Palm, according to findings in two studies of termination policy and practice in the S&P 500 by Paul Hodgson, senior research associate at The Corporate Library.

The two reports, Golden Parachutes and Cushion Landings and Paying CEOs to Stay at Home, examined companies in the S&P 500 and contain many that have been either embroiled in controversy during 2002 or whose performance has been less than stellar.

However, the total figure may be underestimated, as the total cost of terminating a CEO’s employment rarely, if ever, places a figure on the value or cost of either benefits or the early vesting of equity awards that invariably accompany a termination.    Corporate Library’s calculations were based on only the cash compensation.

Three Years

The most common provision in CEO golden parachutes is for three years’ salary, bonus and benefits, with immediate vesting of all equity awards. Golden Parachutes and Cushion Landings studied 367 exit packages finding that 55.5% of the companies would pay their CEOs total annual compensation for three or more years following termination “without cause.” Many others, such as Clear Channel Communications and Comcast would continue payments for even longer periods.

In contrast, fewer than 2% would continue to pay their CEOs for less than one year. Those with one-year severance packages include such companies as CIGNA, Newell Rubbermaid, Moody’s, and Nucor. Companies paying less than a year’s severance benefits are Family Dollar Stores, Intuit and Micron Technology.

As well as salary and bonus payments, severance arrangements include a wide range of benefits such as secretarial support, office space and equipment, security, corporate transportation, health and other insurance, pension enhancements, financial and tax planning advice, access to apartments and country club memberships. Additionally, only 2% of companies in the S&P 500 would reduce any part of a CEO’s severance package if he or she gained alternative employment.

Paying CEOs to Stay at Home studied of 588 US corporations and found only 13 companies mentioned the concept of mitigating or reducing all or part of severance payments for their CEO. On the contrary, the vast majority of companies indicated that not only are officers under no obligation to seek further employment during their termination period, but, even if they do, payment of their severance benefits will not be reduced. Because mitigation is applied in so few cases, most terminated executives who gain employment during the so-called severance or termination period are effectively being paid twice.

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