Chuteless in Detroit

Former GM CEO won't benefit from a golden parachute.

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(Fortune Magazine) -- You don't hear many nice things these days about General Motors' deposed chief executive, Rick Wagoner, or the board of directors that supported him for so long. But the board did do one thing right: It didn't give him or his colleagues golden parachutes - those huge payments that companies typically lavish on top honchos when they are thrown out of their jobs.

How can I say Wagoner is chuteless, given all the references to his leaving GM (GM, Fortune 500) with a parachute worth more than $20 million? Because people are confusing a golden parachute - something extra that a CEO or other top executive gets to just go away - with the benefits that someone has earned fair and square and gets to take with him when he leaves. And in any event, it's clear from GM's filings that Wagoner is not going to receive most of the package that most people think he will.

Bear with me, and I'll tell you why.

Here's the deal. GM said in a March filing that Wagoner's retirement benefits, presumably triggered when he was ousted in April, are valued at $20.2 million. Hence the $20-million-plus chute numbers. But look deeper. The bulk of Wagoner's retirement benefits - $19.2 million - is for an annuity scheduled to give him $4.5 million a year for five years after he leaves GM. But unlike his regular pension, which we'll get to in a minute, this annuity is an unsecured obligation of GM. There's no fund set aside to pay for it. If - make that when - GM goes into Chapter 11 or does any other sort of financial reorganization, that annuity is almost certain to be wiped out. If Wagoner has somehow managed to draw his first $4.5 million - GM declined comment - he's likely to be forced to return it. (To find out why, consult your local bankruptcy guru.)

The other $943,900 of Wagoner's retirement benefit is his regular pension, which pays $68,900 a year. He has to take the pension annually; he can't cash it out in one big lump. To be sure, $900K sounds like a lot of money - but pensions are very valuable. For example, in late 2006 Vanguard's annuity experts valued my projected Social Security retirement benefit at $738,000. And a Social Security retirement check isn't enough to let you lead anything resembling a megabuck life.

In addition to his pension, Wagoner has deferred compensation that was worth about $360,000, assuming he's already taken it. But that's money he earned in his 31-plus years at GM and left at the company (something I never do), to which he's clearly entitled.

Now, I'm not crying poverty for Wagoner, who knocked down a seven-digit cash salary, including a 33% raise (to $2.2 million) in 2008, when the company was struggling and asking workers for givebacks. But Wagoner didn't ask for a parachute, as far as I can tell, for which he deserves at least some credit.

To be sure (three of the most dangerous words in business writing), the government bailout loan GM got last year bans parachute payments to its top five executives. But GM, like a relative handful of other big companies, didn't have any parachutes to eliminate. So let's give the GM board a small cheer for having done something right.

I'm not thrilled with the prospect of the government running GM - for practical reasons, not ideological ones.

I'm afraid the government will try to turn GM into a social experiment by forcing it to concentrate on small "green" vehicles that U.S. car buyers generally don't want, at least not at today's gas prices.

I also suspect that government overseers won't dare approve GM's building a big new facility anywhere outside the U.S., no matter how strong the business case for doing so. After all, who'd want to risk being pilloried in public for outsourcing jobs?

If we want GM to be a public works project, let's include it in President Obama's stimulus package. Otherwise, let's hope someone in Washington has the sense (and intestinal fortitude) to make sure that the New GM runs on business principles. Not on political ones.