Executive Compensation (Part II): Paying Failure

In late September 2011, Léo Apotheker was fired after 11 months as CEO at Hewlett-Packard. As a reward, he walked with $13.2 million in cash and stock, in addition to a sign-on package worth about $10 million, according to the New York Times. A month earlier, Robert P. Kelly received severance worth $17.2 in cash and stock when he was fired as CEO of Bank of New York Mellon. Even his clashing with board members and senior managers did not obstruct his nice severance package. A few days later, Carol Bartz was let go as CEO of Yahoo with nearly $10 million in spite of the company’s poor performance. Back in April 2011, John Chidsey, the CEO of Burger King, had departed with a severance package worth almost $20 million in the fact that McDonalds had been outcompeting Burger King. Baxter Phillips, the CEO of Massey Energy, got a package worth over $34 million in spite of “presiding over a company barraged with accusations of reckless conduct and with legal claims stemming from one of the deadliest mining disasters in memory,” according to the New York Times. Unfortunately, the list goes on and on. Is this a system of pay-for-failure? Moreover, do chief executives, who seem to outward appearances to be almost exclusively motivated by what they can get in additional compensation, have too much leverage over boards, and thus over even the owners as well? If so, is corporate governance itself severely broken? I answer in the affirmative.

The full essay is at "Executive Compensation: Paying Failure."

Eric Dash, “The Lucrative Fall from Grace,” New York Times, September 30, 2011. 

On the Unfairness of the Bonus System on Wall Street

Craig A. Dubow, Gannett’s former chief executive, had a short six-year tenure that was, by most accounts according to The New York Times, “a disaster.” David Carr reports: “Gannett’s stock price declined to about $10 a share from a high of $75 the day after [Dubow] took over; the number of employees at Gannett plummeted to 32,000 from about 52,000, resulting in a remarkable diminution in journalistic boots on the ground at the 82 newspapers the company owns. . . .  the company strip-mined its newspapers in search of earnings, leaving many communities with far less original, serious reporting. . . . Not only did Mr. Dubow retire under his own power because of health reasons, he got a mash note from Marjorie Magner, a member of Gannett’s board, who said without irony that ‘Craig championed our consumers and their ever-changing needs for news and information.’ But the board gave him far more than undeserved plaudits. Mr. Dubow walked out the door with just under $37.1 million in retirement, health and disability benefits. That comes on top of a combined $16 million in salary and bonuses in the last two years.”

Besides the inherent unfairness in an incompetent manager getting millions of dollars in compensation (for championing incompetence?), it is morally problematic when, as Carr puts it, “the consequences of bad decisions land on everyone except those who made them.” 

The full essay is at "Unfair Bonuses on Wall St."

Source:

 David Carr, “Why Not Occupy Newsrooms?” The New York Times, October 24, 2011. http://www.nytimes.com/2011/10/24/business/media/why-not-occupy-newsrooms.html