IT'S TOUGH FOR CEOS to give up their nice perch. At Toro, the board has found an intriguing way to deal with the problem: Simply pay the chief $1.5 million to find his own successor.
It's not that the lawn-and-garden equipment maker's board is unhappy with Kendrick Melrose, 55. During his 12-year tenure, Melrose has guided the company to consistent sales and earnings increases. But five years from now, when he's only 60, they want him to make way for fresh blood.
Some think that picking a successor is part of a CEO's job. The Toro board, though, wants to give Melrose an incentive to get a crackerjack replacement. He will bag all that extra green if the successor takes over on July 31, 2000. Melrose gets $150,000 in stock and cash for developing a succession plan by 1998. Then, an additional $150,000 for tapping a successor in 1999. In 2000, with the new person in command, he collects $700,000 in stock and cash. The package is rounded out with an annuity worth $500,000 for signing a noncompete agreement.
Toro says that Melrose hasn't started looking, and that his replacement could come from inside or outside the company.