Golden Parachute for CEOs: The Debate Rages On

golden parachute

The golden parachute for Time Warner Cable’s Robert Marcus has again stoked the argument of whether such lavish payouts are justified. As his $79.5 million dollar goodbye kiss has people questioning the overgenerous golden parachute for CEOs, the debate rages on.

Although Marcus joined TWC in 2005, he hadn’t become chief operating officer until this January. If his company is sold to Comcast, and the deal is currently in the works, the transaction will net him stock worth $56.5 million, $20.5 million in cash and a bonus totaling $2.5 million. Even though the payout is contingent on meeting certain TWC performance goals, and then losing his job, it is still not bad for about 90 days work.

Lavish as the amounts seem, they pale in comparison with the golden parachutes some other CEOs would receive if they should lose their jobs. CEO John Hammergren of McKesson Corporation would get $303.4 million if he were shown the door. Discovery Communications’ David Zaslav would pocket some $224.7 million and CBS head Les Moonves would leave with more than $251 million. Even these payouts are less than Jack Welch got when he left General Electric. Exclosure during his divorce proceedings reveal his severance package at $417, million.

According to Charles Elson of the University of Delaware in Newark, the trend toward generous golden parachutes began in the 1980s. As CEOs watched their counterparts being let go during these merger-happy years, they began to feel increasingly insecure. They began insisting on large payouts if they lost their jobs, and the idea of the golden parachute landed with an impact. Part of the trouble, Elson says, is that the contracts are written when a company is trying to recruit an executive, and they don’t often think about the consequences of paying out so much money.

There are various sides to every story, though, and that is where the controversy begins. When it comes to the golden parachute for CEOs, the debate wages on. Take CEOs involved in the entertainment industry. Bloomberg News says half of its list of CEOs topping $100 million in severance payouts is made of up of the heads of companies involved in the business of entertainment. Among them are Viacom’s Philippe Dauman and Tom Dooley and Walt Disney’s Robert Iger. Is there justification for that type of parachute?

Robert Thompson of Syracuse University told Bloomberg that there is – sort of. He said that while that level of money is huge by most people’s standards, executives look at the budgets of the movies their company makes and the pay for movie stars, an expect at least an equal level of compensation.

It is little surprise that such golden parachutes have drawn criticism from a number of fronts, The AFL-CIO has put pressure on companies where its workers are employed to limit the value of stock and options that were already vested. Outside pressure has been successful in some instances. The contract of CEO David Simon of Simon Property Group has been cut from some $165 million to $86 million if he were to be ousted before the full value of his long-term incentive plan is paid in 2015. The cuts came when 71 percent of shareholders casting ballots in 2012 insisted on a revised payout package. The new package was agreed upon by 55 percent of voters in 2014.

Still many people, shareholders chief among them think such huge payouts are unjustified, and may actually destroy a chief officer’s incentive to produce. As the conversation continues about the golden parachute for CEOs, the debate rages on.

B. David Warner

Sources:

The New York Times

Bloomberg News
The Celebrity Cafe

One Response to "Golden Parachute for CEOs: The Debate Rages On"

  1. Jeffery J. Smith   April 10, 2014 at 2:57 pm

    Why is this not theft? Management did not earn those millions that they take from the company. The money belongs to shareholders.

    Government needs to break from Big Business and side with the public and write laws that would lead to executives getting arrested and serving time when they steal via paying themselves from their companies.

    Also, such fat payouts prove that government, were it truly in the people’s corner, could negotiate far higher “rent” payments for letting tele-comms use the airwaves or enjoy other monopolies in various regions. Government could use the revenue from granting such privileges to pay dividends to citizens, since corporations are not paying fair dividends to shareholders. Starting at progress.org.

    Reply

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