At a congressional hearing earlier this month, Rep. Henry Waxman,
D-California, railed against, among other things, the severance packages that
marquee chief executives have been receiving of late.
Specifically, Waxman criticized the exit packages given to Stanley O’Neal,
the former CEO of Merrill Lynch, and Charles Prince, the departed chief of
Citigroup.
“Our nation’s top executives seem to live by a different set of rules,”
Waxman said.
But generally, it appears the vast majority of companies are not raising the
ante when revisiting a severance package with an outward-bound chief
executive.
According to a new report from Watson Wyatt, 54 of the 70 companies studied
by the consulting firm, or 77 percent, did not provide their exiting CEOs with
any termination payments beyond what was disclosed to shareholders in their 2007
proxies.
Watson Wyatt examined 8-K filings for outgoing CEOs between April and
December 2007 and cross-checked with the proxies their companies filed in early
2007 to make the determination, noted Ira Kay, the firm’s global director of
compensation consulting.
“The SEC required disclosure of potential termination payments for the first
time last year, and an overwhelming majority of companies stuck to their
proxies,” Kay said. “If companies want to be able to defend large cash and stock
incentives to their CEOs, they need to be delivering on these peripheral
compensation promises.”
Of the 23 percent of companies that did deviate from their proxies, Kay said
some ended up offering CEOs longer non-compete agreements, while others made ad
hoc payments to CEOs for “unspecified transition services.” Watson Wyatt found
these companies increased compensation for their CEOs at termination by roughly
$600,000.
Severance packages have become a hot topic of late.
In addition to Waxman’s hearings, some shareholder groups have complained
bitterly about generous packages awarded to CEOs at companies that have
performed poorly.
An increase in CEO turnover has also placed a spotlight on the topic.
According to consulting firm Liberum, CEO turnover in the first two-and-a-half
months of this year is up 22 percent over the same period last year.
Meanwhile, CFO turnover is only up 2 percent so far this year, Liberum
found.
Filed by Mark Bruno of Financial Week, a sister publication of Workforce
Management. To comment, e-mail editors@workforce.com.
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