Saturday, June 05, 2004

Even when fired, executives concentrate wealth

Title: Execs cash out at exit door
Source: MSNBC
Date: June 6, 2004

From the article:
    The Courier's annual review of executive compensation found that four of the year's five biggest raises went to executives forced out of their companies. These execs were then handed severance packages worth two to five times their annual salary and bonus in the year prior to their departure.

    Leading the pack was Stanley Pontius, chief executive of First Financial Bancorp. in Hamilton, who received a 420 percent raise that include a $3.4 million severance package -- nearly five times his 2002 salary and bonus. Pontius left the bank last October after what company officials called a disagreement about the company with its directors. Pontius had been the company's president and CEO since 1991.
    Other negotiated deals included a combined $5 million in separation packages for three Cincinnati Bell executives -- CEO Kevin Mooney, CFO Thomas Schilling and General Counsel Jeffrey Smith -- who lost their jobs following the sale of the company's money-losing broadband division. All got roughly two times their 2002 salary and bonus.

    The severance deals for all four executives boosted their 2003 compensation by more than 250 percent.

    "The good old boy's club is still working very well," said Steve Dillenburg, a managing partner at Summit Investment Partners.
    "Termination payments are supposed to protect CEOs from financial hardship when they are terminated. It seems to me that a payment of one year's salary would be sufficient for that," said Paul Hodgson, compensation analyst for the Corporate Library, a Portland, Maine-based group that promotes good corporate governance practices.

    Hodgson analyzed all of the so-called "golden parachute" packages awarded by S&P 500 companies in 2001 and 2002. He found the average payday for CEOs was $16.5 million.
The implication here is that, prior to firing the executives, companies jack up their salaries by a factor of two to five times, and then the severance package pays a multiple of that as well. The good old boy's club certainly is working very well, and it it is consumers like you and me who are paying the bill.

One obvious question prompted by this article is this: Why do consumers need to "protect CEOs from financial hardship" when they get fired or when they resign? Rank and file employees get no such protection, and they have a far greater need. If a CEO's job pays $10 million a year, can't he/she save a little of that for a rainy day? Why give them any severance package at all?

It is insane to suggest that someone making $10 million per year needs a $16 million severance package to protect against financial hardship. Yet this is the norm. That is how the concentration of wealth works.


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