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The New Graveyard Shift


He who doesn’t lose his wits over certain things has no wits to lose. – Gotthold Ephraim Lessing, Emilia Galotti [1772]

A clarification: In a couple of recent columns I may have left the impression that it was only former employees of the federal government who get sweetheart deals after they have left their former employer. Nothing could be further from the truth. The private sector is even more creative than the public sector that is presided over by George Bush when it comes to such things.

Payments private sector employees receive after leaving their employment require nothing of them whereas those getting the government dole have to work in order to receive their compensation.

It is impossible in a space as short as this, to chronicle all the rewards bestowed upon executives in the private sector who have left their employers. A few examples suffice. And in considering their severance packages it is well to keep in mind that while working these men and women received somewhere in the neighborhood of 262 times the pay of the average worker. In other words, they were not threatened with impoverishment upon leaving the pay of their employers.

When Merrill Lynch & Co. decided that Stan O’Neal, its CEO, was not doing an adequate job, the board got rid of him. It gave him the 5th largest exit-pay package ever received by a U.S. executive: $161.5 million in stock and retirement benefits. Home Depot’s former CEO, Bob Nardelli, received a severance package of $210 million even though the company stock did not fare well under his governance and he was liked by neither employees nor customers.

Hank McKinnell, the former CEO of Pfizer, received $213 million when he left the company and Lee Raymond of Exxon Mobil received $351 million when he left. The reason they got more than Messrs. O’Neal and Nardelli, presumably, was because their departures were not linked to poor performance.

Thanks to a report in the Wall Street Journal, we now know that many companies have compensation packages for executives who neither retire nor are fired. Those are the executives who are summoned to a higher calling while still employed. They die.

According to the Wall Street Journal, many corporations provide for post-mortem severance packages that rival the inter vivos packages described above. The lavishness of these payments is not new. What is new is that as a result of a federal rule change the size of these payments is required to be reported in such a way that those reading shareholder proxy statements can understand them.

According to the WSJ, when Eugene Isenberg, CEO of Nabors Industries Ltd. throws off his mortal coil the company will throw off benefits for him that exceed the most recent first quarter earnings of his company. The amount of his severance package is $263.6 million. The family’s sorrow that will surely accompany the death of Brian Roberts, CEO of Comcast, will be ameliorated by the severance package valued at $298 million his family will receive. XTO Energy Inc. has provided a $3 million life insurance policy to its CEO, Bob R. Simpson and wanting to further assuage his survivors’ grief has also agreed to provide a $111 million bonus.

As generous as the post-mortem payments are, (and they usually consist of providing insurance, vesting stock options, etc.) the most creative way of describing the payments is that used by the Shaw Group of Baton Rouge, La. It has agreed to pay its CEO, James M. Bernhard Jr., $17 million for a covenant not to compete for a period of 2 years following his death. Normally, when an employee signs a covenant not to compete the employee is agreeing not to enter into a line of work that is in competition with the former employer and it assumed that the employee is able to work somewhere on this earth. In Mr. Bernhard’s case, however, when he moves into celestial heights (not the name of a subdivision in Louisiana) the company will pay him not to compete against it.

Although the foregoing suggests that executives are getting what they deserve, labor doesn’t doesn’t seem to get the same rewards – just or not.

Richard Ferlauto, director of corporate governance and pension investment for the American Federation of State, County and Municipal Employees, observed that Mr. Isenberg’s death benefit “is a great present to his estate” but would have a significant – and deleterious – effect on the company’s balance sheet.

Mr. Ferlauto doesn’t understand that those kinds of payments are what make America the kind of economic place of which George Bush is so proud.

Share  Posted by Christopher Brauchli at 8:00 AM | Permalink

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