No Added Bucks Most Corporate Boards Not Renegotiating Severance Packages

By Staff Report

Mar. 21, 2008

At a congressional hearing earlier this month, Rep. Henry Waxman, D-California, railed against, among other things, the severance packages that marquee chief executives have been receiving of late.

Specifically, Waxman criticized the exit packages given to Stanley O’Neal, the former CEO of Merrill Lynch, and Charles Prince, the departed chief of Citigroup.

“Our nation’s top executives seem to live by a different set of rules,” Waxman said.

But generally, it appears the vast majority of companies are not raising the ante when revisiting a severance package with an outward-bound chief executive.

According to a new report from Watson Wyatt, 54 of the 70 companies studied by the consulting firm, or 77 percent, did not provide their exiting CEOs with any termination payments beyond what was disclosed to shareholders in their 2007 proxies.

Watson Wyatt examined 8-K filings for outgoing CEOs between April and December 2007 and cross-checked with the proxies their companies filed in early 2007 to make the determination, noted Ira Kay, the firm’s global director of compensation consulting.

“The SEC required disclosure of potential termination payments for the first time last year, and an overwhelming majority of companies stuck to their proxies,” Kay said. “If companies want to be able to defend large cash and stock incentives to their CEOs, they need to be delivering on these peripheral compensation promises.”

Of the 23 percent of companies that did deviate from their proxies, Kay said some ended up offering CEOs longer non-compete agreements, while others made ad hoc payments to CEOs for “unspecified transition services.” Watson Wyatt found these companies increased compensation for their CEOs at termination by roughly $600,000.

Severance packages have become a hot topic of late.

In addition to Waxman’s hearings, some shareholder groups have complained bitterly about generous packages awarded to CEOs at companies that have performed poorly.

An increase in CEO turnover has also placed a spotlight on the topic. According to consulting firm Liberum, CEO turnover in the first two-and-a-half months of this year is up 22 percent over the same period last year.

Meanwhile, CFO turnover is only up 2 percent so far this year, Liberum found.

Filed by Mark Bruno of Financial Week, a sister publication of Workforce Management. To comment, e-mail

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