Outrageous Exit Packages Must Stop Now!

By Frank Glassner
CEO, Compensation Design Group

The following document is the opinion of Frank Glassner.

NEW YORK, NY - June 11, 2002 - Something unexpected happened to a few CEOs on their way to success. They failed. Right before the bewildered eyes of their company shareholders, these CEOs transformed themselves from captains of the industry to captains of corporate Titanics as they steered their companies to the ground.

Many of these same CEOs caused outrage over their skyrocketing executive pay packages when they were leading their crumbling companies. Now they are causing fury over the shocking exit packages they're getting for departure, leaving the company in shambles. We routinely read about the outrageous exit packages for CEOs who leave for greener pastures. Unfortunately, most are CEOs who did a lousy job and need to be put out to pasture.

I don't recall that anyone gave a bonus to the captain of the Titanic, so why should outgoing CEOs of failing companies receive anything? There are too many examples of Titanic captains in Corporate America, starting with Dynegy's outgoing CEO, Charles Watson, who walked away with a $33 million exit payment - much more than if he would have stayed and served out his contract.

We also can't forget Tyco's Dennis Kozlowski, who in spite of being indicted for tax evasion charges, may actually receive a handsome exit package. Since Kozlowski resigned as CEO, the package may not be as generous as if the board had to fire him. If that had happened, he would have received about $135 million, plus $3.4 million per year for a 30-day-per-year consulting contract for the rest of his life. As if a fired CEO would have any consulting value whatsoever.

Yet another symbol of the Titanic, K-Mart, gave its former CEO Charles Conaway more than $20 million in salary bonuses and severance payments after less than two years with the ailing retailer. In the meantime, the company is in the process of closing 283 stores and laying off 22,000 employees.

What message does Corporate America send with exit packages like these? That if you do a good job, we'll pay you, but if you do a lousy job, we'll pay you even more? That's certainly not pay for performance. It's not even pay for attendance, but rather pay for abandonment.

Will aspiring CEOs enter business schools now with the idea that if they bankrupt companies and commit criminal acts, they'll get a multi-million dollar lollipop? Will they assume that they'll get a performance modifier for embezzlement and a special bonus if they're convicted?

What is wrong with this new picture of Corporate America? One of the problems is that ridiculous exit packages for outgoing CEOs have become too commonplace. It doesn't start with Dynegy and end with Tyco. There are plenty of other companies that subscribe to the Boesky School of Business philosophy by giving the non-performing CEOs exit packages that far exceed the compensation they deserve for ruining the company. Adelphia Communications Corp, World.com Inc. and Lucent Technologies have all paid severance to departing CEOs who didn't do their job to a satisfactory level. Unfortunately, that list is becoming much too long. Boards of directors have to take their heads out of the sand and quit operating with a nod and wink. If the departing CEO didn't do a good job, he shouldn't be rewarded with a hefty compensation package when he's ousted. It's as simple as that.

Another simple step in clearing up this exit package mess is that the shareholders themselves have to start being more vocal about the whole situation. They need to repeat a scene from the 1976 movie, "Network," where the aging anchorman played by Peter Finch stands up and says, "I'm mad as hell and I'm not going to take it anymore." Shareholders have the power to do this with their proxy vote. They need to let Corporate America know that they truly aren't going to take it anymore.

Frank Glassner, a 26+ year veteran of executive compensation, is the CEO of Compensation Design Group. Headquartered in New York, with offices in Chicago and San Francisco, the Compensation Design Group is an internationally recognized firm that focuses on delivering cost effective and customized compensation, benefits and human resources programs.