Golden Parachutes
But how could companies compete if they couldn’t lavishly reward failed executives? It’s the magic of the unfettered free market!
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These guys are very small peas. William McGuire, former CEO of United Healthcare, unsatisfied with his $1.4 billion in exercisable stock options*, eventually had to settle with the SEC for illegally backdating his stock options to reap an extra $400 million. Despite this, McGuire “retired” with a $1.1 billion golden parachute, the largest ever in corporate America at the time, which also included lifetime payments for an office, secretary, paid life and disability insurance premiums and health care for his family, etc., ad infinitum.
Even the guy at the top of the Times’ list only got a measly $49.9 million. I almost feel sorry for him.
*Just one of the reasons healthcare insurers need to double and triple their rates.
So, it’s not just demand – our new Galts can’t hire any more people because they’re too busy paying off the last failed Galt’s Golden Parachute.
This way, he/she saves money for their own Golden Parachute when they fail.
Nice work, if you can lie, cheat, backstab, and lay-off your way to get it.
Ooops, forgot “steal.”
Can’t forget that one!
You can hire about 350 productive workers for the price of the average CEO. I know which sounds like the better deal to me.
Yup, me too!
the only way to have a market setting prices for ceos would be for the ceo candidates to submit sealed bids so that comp can be compared against comp.
what happens instead, of course, is that the board decides who it wants and then pays that person whatever he or she asks for. i can’t ever remember reading of a single major corporation that decided to move on to their second choice for ceo because the first choice wanted too much money.
which may be reality, but of course is not market-based in the slightest, much as they would like to pretend otherwise.
The board, of course, is made up of CEOs from other companies, so they’re all just doing each other a favor.
Often personally picked (and serving at the discretion of) the CEO they are nominally supervising.
well, if we really want to drill down into it, it’s not even the board, it’s the comp committee, which absolutely is filled with friends and mutual back-scratching colleagues.
Whose own compensation in their main job is based upon “comparables” that they help to set.
You don’t even need self-serving behavior from the comp committee. All it takes is a mindset that says $XXmillion is the average for comparable companies to pay their CEOs and we believe (and want to signal to others) that we have a much better CEO candidate, therefore our guy should get $XX + $YY million. And it keeps ratcheting up.
If a Galt is proven to be a total incompetent who risked putting his company in a tailspin, he gets a huge reward from the company.
If a Galt is proven to be a total incompetent who actually put his company in a tailspin, he gets a huge reward from the government.
It must be nice being rich.
Er, the article isn’t exactly clear, but it seems that the facts suggest these sort of severance deals are set up when the CEO signs on to the company; while the article seems to want to imply that the Board is just lavishing fired CEOs after the fact when they don’t have to.
Usually, they are agreed upon ahead of time, yes. However, that does not abrogate the responsibility of the board to make sure the parachute is earned with specific performance evaluations that are not tied to the price of the stock
Based on actual performance. at least as well, if not better than under the current system and for a whole lot less money.
Y’know, there are some corporate greed things that, while odious, I can at least understand the logic of: giving big bonuses to brokers, as an example (even tho a very strong argument can be made that ultimately they are detrimental to not just that firm but the entire economy at large.)
Golden parachutes never made any sense to me, whatsoever. To have a severance package that in no way, shape or form was tied to a performance justification is the height of stupidity.
Or at least a major peak in the Idiotic Mountains.
it doesn’t make it any better, actor212, if i tell you why: it’s a payoff for the opportunity cost.
that is, we are supposed to believe that ceo candidates are in such amazing demand that really, they are foregoing untold opportunities elsewhere just to come work with you, and if things don’t work out, well hell, they forewent untold opportunities elsewhere that would have worked out, so you should pay up anyhow.
i swear: that is the argument.
p.s. and just to show that i’m a fairminded soul, there are some isolated occurences where that is true, typically in a case where a lead candidate for the ceo slot in one company is lured to another with which he has no experience, but as a general rule, it’s ridiculous.
Yes.
Where have we head that argument before?
Was it when Goldman paid out billions in bonuses from the bailout money they were given?
Bonuses to the same asshats who put us in bankruptcy in the first place?
But never forget! Executives are paid many, many times more than their laborers due to the terrible amount of risk they assume. Why, if they screw up, all they’ll be left with is a multi-million dollar severance package. Oh what a labor you assume, Atlas.
these people are all just higher class grifters. they are the failed coaches of the fortune 500 who, much like failed coaches for professional athletic teams, just move on to the next franchise. once you break in to circle, you never really get fired, you just become the flavor of the month for another company/team.
Missing from the report: Whether any of these companies, as a result of “difficult economic times and a change in business outlook,” have modified their pension plans for non-executives. It greatly irritates me when the sanctity of contracts only applies to some contracts.
“There’s a club . . .”