A lot of
pay is going to those who go away
Directors seem to feel little need to trim executive
By Bruce Meyerson, Associated Press
Sunday, February 12, 2006
NEW YORK - For outgoing corporate chieftains, the lovely
parting gifts remain as lovely as ever.
Wallace Malone Jr., for example, is retiring as vice
chairman of Wachovia Corp. with a nest egg of at least $135
He'll likely get tens of millions more in reimbursements for
income taxes, the idea being that no executive should have
to endure the trauma of writing that kind of check to IRS.
Malone's benefits consist of a dizzying array of payments
from five separate deferred compensation plans and three
different retirement plans. The package also includes five
"annual termination payments" of $6.7 million and an annual
allowance of $200,000 for five years for office space and
And no tale of corporate excess seems complete these days
without a story from the Magic Kingdom and Michael Eisner,
the former chief of Walt Disney Co. who once championed a
$140 million golden parachute for Michael Ovitz, a friend
who lasted just 14 months as his deputy. Eisner departed
prematurely last year with a parachute of nearly $24
million, not including a $300,000 annuity for life.
The purpose here is not to recite all these large numbers
simply for dramatic effect. One might dream of an executive
who would be chastened enough by the public spotlight to
forgo some severance, but most are apt to respond to
criticism like the former CEO of Gillette Co., albeit not so
publicly: James Kilts used a September speech to denounce
attacks on his $165 million windfall from the sale of
Gillette to Procter & Gamble Co.
Has outcry registered?
The real issue is whether the outcry against excessive pay
and severance has resonated with the boards who control the
corporate cash register.
The money going to Eisner and Malone is the legacy of an era
before the collapse of the bull market five years ago. Both
were long-serving executives whose contracts were renewed in
the mid-1990s, at a time when many boards seemed to feel no
need to sweat the details of the packages they were
So do the executive contracts awarded more recently show
more restraint? The evidence is mildly encouraging at best,
with some contracts offering two full years of salary and
bonus rather than three.
The contract given to new Disney CEO Robert Iger may entitle
him to $18.5 million in severance rather than the $27.8
million an Eisner-type agreement would have produced. And
at 3M Co., new CEO George Buckley would be entitled to at
least $8.4 million in severance rather than $12.6 million
under a three-year framework.
Nevertheless, some shareholder activists are gunning for
strict limits on severance and the right to approve any deal
more generous than the three-year package. The board at
Coca-Cola Co. recently adopted such a policy after opposing
a shareholder measure at the 2005 annual meeting that drew a
40 percent vote in favor.
You'd also hope that directors might stop arguing that their
hands are tied by old contracts.
Wachovia asserted repeatedly in its disclosure of Malone's
parachute that a great deal of his money was due under
"obligations" the financial services company "assumed" in
late 2004 when it acquired SouthTrust Corp., the bank where
Malone was longtime CEO.
That interpretation neatly omits that Wachovia's board could
have objected when it negotiated a takeover that in itself
generated tremendous wealth for Malone.
There's little precedent for such a stand, which could
antagonize egos and imperil a merger negotiation, so the big
paydays for CEOs who sell their companies keep coming.
In recent months, AT&T Corp. CEO David Dorman and MCI's CEO,
Michael Capellas, each drew extra pay worth roughly $20
million for selling their companies to SBC Communications
and Verizon Communications, respectively.
Then there's pay for lackluster performance.
Eisner was to have served as Disney's chairman and CEO until
next October. His departure was hastened by a combination
of stagnant results — when he left in October, Disney's
shares were just a tad higher than a decade earlier — and
mounting shareholder distaste for his style of stewardship.
However, the Disney board deemed that Eisner left in October
for "good reason," the contractual magic words that bestow
full severance on an executive who departs earlier than
Malone and Eisner at least spent lengthy tenures at the
helm. Even relative short-timers whose tenures are cut
short by poor performance are granted full severance.
Reward for service
The board at Zale Corp. plans to pay full severance of $3.6
million to Mary Forte, who resigned as the jewelry
retailer's CEO recently, just months after she was given a
Never mind that a spokesman said Zale's board "was
disappointed that after 3 1/2 years," Forte's strategy
hadn't "translated into better financial performance."
Clearly, shareholder dismay has produced only limited
backbone in the boardroom when it comes to reeling in