NEW YORK (CNN/Money) -
What's more lucrative than landing a job as CEO of a major U.S. company? Getting fired from it.
Just when shareholder anger is peaking on the issue of overly generous CEO salaries, along comes a related bit of boardroom villainy. Executive severance agreements, it seems, can be even loonier than pay packages.
During the past two years, the average severance package at an S&P 500 company amounted to $16.5 million. That's according to a recent study by Paul Hodgson of the Corporate Library, a research clearinghouse on corporate governance issues.
What's more, the report probably understates the total cost of CEO termination. Companies often skimp on the details when it comes to the value of such things as early vesting of restricted stock and options, benefits, and perks like office space and administrative employees.
The Corporate Library studied the severance agreements of 367 companies. Of those firms, 55.5 percent pay total salary, bonus, and equity awards for at least three years following the departure.
"With CEOs receiving an average $15 million to start, and $16.5 million to finish," said Hodgson, "they hardly need to make any money in between."
Learning Jack's lessons
Last year, retired General Electric chief Jack Welch got unwanted publicity when divorce proceedings revealed the details of his sumptuous retirement package. He was eventually forced by public pressure to give up such perks as a private jet, box seats to Red Sox games, and an $80,000 a month corporate apartment in New York.
The charismatic Welch, however, has admirers and imitators across Corporate America. Here are some current and former heavyweights stealing a page from Captain Jack's book:
Is reform on the way?
- Home Depot Home Depot (HD: Research, Estimates). CEO Robert Nardelli, whom Home Depot lured from a high-profile position working for Welch at GE, would take home cash and bonuses worth $82 million if he were dismissed. That includes an upfront cash payment of $20 million, due within his first 30 days of unemployment. (Click here to see Nardelli's employment agreement.)
- Clear Channel Clear Channel Communications (CCU: Research, Estimates). CEO L. Lowry Mays would receive base salary and bonus for seven years, which works out to some $28 million, not counting other equity-related goodies. Clear Channel also employs Mowry's two sons, Mark and Randall, as COO and CFO, respectively. If Dad were forced out and neither son succeeds him, all their separation packages double.
- El Paso Corp. El Paso (EP: Research, Estimates). William Wise, fired in March as CEO, may sue over the skimpiness of the $9.4 million in severance the company has agreed to pay him. That's in addition to more than $15 million in retirement benefits he is set to receive.
- Gemstar Gemstar-TV Guide (GMST: Research, Estimates). Former CEO Ed Yuen, also recently terminated, may pocket up to $30 million in severance fees, despite an SEC inquiry into his stewardship of the company's finances.
- Conseco (delisted). A few years back, ousted founder Stephen Hilbert made headlines with a $72 million separation agreement. Replacement CEO Gary Wendt was hailed as a savior worth every penny of his $45 million signing bonus. After Conseco declared bankruptcy, Wendt departed with no severance but a $17 million pension.
"There is no lack of stockholder proposals objecting to the size of severance packages and calling for them to be reduced," according to Hodgson. Resolutions to scale back severance packages have been offered at scores of companies, including Sprint, GE, Qwest, Delta, and Verizon.
Such measures are often difficult to pass. "Shareholder reforms are kind of like North Korean elections if you're a dissident," said California state Treasurer Phil Angelides in a speech last month.
Momentum may be gathering, however. Last Wednesday at Verizon's (VZ: Research, Estimates) annual meeting, a proposal to rein in executive severance agreements passed despite company opposition. The Association of BellTel Retirees, a grassroots advocacy group concerned with pension and benefit issues, sponsored the measure.
That was followed Friday by Delta's contentious annual meeting, held at a crowded ballroom at the Plaza Hotel in New York. There, a resolution proposed by the pilots' union also passed, putting additional pressure on Delta (DAL: Research, Estimates) to redress its executive severance policies.
Nevertheless, widespread reform probably remains far off. "Short term, it continues to be a terrible problem," said Nell Minow, editor of the Corporate Library.
She cites the remarkably tone-deaf travails of deposed CEO Don Carty, recently forced out of the captain's seat at American Airlines. "The Carty fiasco shows you that they're still living in 'We-Don't-Get-It Land,'" said Minow.