Commentary: Ceo Pay: Nothing Succeeds Like Failure

A confession: I debated whether to deliver this article. (Imagine the look on the editors' faces when they found themselves staring at a page of white space.) If that sounds like I'm asking to be fired, just one question: Where do I sign? Because after seeing the obscene severance packages given to CEOs who ostensibly were let go, failure has never looked more lucrative.

Indeed, if the meteoric growth in executive pay already seemed troubling, the growing phenomenon of corporate boards showering generous parting gifts on failed CEOs is insulting not just to us workers, but to shareholders as well. The latest evidence: On Aug. 25, Procter & Gamble Co. disclosed that it gave just-ousted CEO Durk I. Jager a $9.5 million bonus--even though Jager lasted no more than 17 months at the helm and with P&G's stock down 50%, costing P&G shareholders more than $70 billion in wealth. But P&G looks downright penurious compared to Conseco Inc., which earlier this year gave a $49.3 million going-away gift to Stephen C. Hilbert, whose ill-fated move into subprime lending has left the insurer's recovery in question.

But if there's any villain here, it isn't Jager or Hilbert. It's the boards of their former companies, who by approving such generous parachutes, are sending the perverse message that failure has its reward. "This is the fault of the boards," argues Nell Minow, a Washington (D.C.)-based shareholder activist. For activists such as Minow, this is pure and simple corporate log-rolling. Many boards are peopled by CEOs serving as outside directors looking out for their own.

So it shouldn't be surprising that Halliburton Co.'s board agreed to give its CEO, Richard B. Cheney, an exit package worth $13.6 million. Although he didn't fail, it was a nice parting gift for resigning to serve as George W. Bush's running mate. After all, as a director himself for other companies, Cheney has approved hefty termination packages for several chief execs, including Jager.

For their part, corporate directors say that the huge payouts aren't always undeserved. In the case of M. Douglas Ivester--who received a $25.5 million severance from Coca-Cola Co. last December, according to Executive Compensation Advisory Services, despite his bungling of a European contamination scare and his unwillingness to slash Coke's overhead--directors chose to take the long view of his performance. "The fellow broke his back for Coke for 25 years and made significant contributions," argues New York investment banker Herbert A. Allen, a Coke board member. Directors such as Allen also fret that trying to penalize a failed CEO would only make it more difficult to recruit outside executives. "You'd get a bad reputation in the community from which you hire very quickly," he says.

GENEROUS DEAL. Granted, as former Coke CEO Roberto C. Goizueta's right-hand man, Ivester did a yeoman's job. But for that, Ivester had been amply rewarded, to the tune of $100 million-plus, according to BUSINESS WEEK estimates, by the time of his ouster. And despite the magnanimous intent, these are not cost-free transactions: By one estimate, Mattel Inc. will have to sell 600,000 additional Barbie dolls each year for the next decade just to cover the $1.2 million annual pension being given to ex-CEO Jill E. Barad as part of a broader $50 million severance.

Directors should take the lead of Sunbeam Corp., which after firing Albert J. Dunlap in the face of a disastrous restructuring and allegations of accounting improprieties, resisted his demands that he be allowed to accelerate all of his outstanding options. (Dunlap has since sued.) "No one should expect to make a fortune for failing at their job," argues Charles M. Elson, a Sunbeam director and law professor at the University of Delaware. Of course, since few situations are as extreme as that at Sunbeam, most CEOs can probably bank on a goodbye kiss from former employers, regardless of their performance.

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