Great pay for terrible performance

Corporate America, which continues to reward failure among its chief executives, needs a serious kick in the pants

Corporate America, which continues to reward failure among its chief executives, needs a serious kick in the pants.

The fundamentally misguided belief that a golden parachute is the only way to get rid of a poorly performing chief executive is practically an article of faith in big business. If the granting of an insane severance package is required to lure certain executives in the first place, then maybe shareholders would be better off without the services of these “superstars.”

Consider some recent examples.

Just two weeks ago, Sallie Krawcheck received a $6 million severance package after being unceremoniously ousted as head of the wealth management division of Bank of America Corp.

Last month, Leo Apotheker received a severance package worth $13.2 million in cash and stock for his 11-month tenure as CEO of Hewlett-Packard Co. Under his “leadership,” the company’s stock price shriveled.

This summer, Robert P. Kelly was given severance worth $17.2 million in cash and stock when he was fired as chief executive of The Bank of New York Mellon Corp. after clashing with board members and senior managers. A few days later, Carol A. Bartz took home a $10 million severance package from Yahoo Inc., ending a rocky two-year tenure as CEO.

Another CEO received his severance package after his company was accused of fraud. At Beazer Homes USA Inc., Ian McCarthy was ousted in June, three months after the company settled with the Securities and Exchange Commission for filing misleading financial statements. As part of the settlement, Mr. McCarthy was forced to repay about $6.5 million in stock options and a bonus he had received.

But don’t cry for Mr. McCarthy. What the government took away, Beazer’s board gave back; the ousted CEO was awarded a severance package worth about $6.3 million — and reimbursed him for up to $10,000 of legal fees associated with his termination.

Is it any wonder that American shareowners, the bedrock of our capitalist system and hardly a radical fringe, are angered by this waste of corporate wealth?

By continuing to be more concerned with the egos and demands of corporate plutocrats than they are with the concerns of their shareholders, corporate boards reveal how out of touch they are with reality. They seem oblivious not only to the direct cost of their outrageous going-away gifts, but also to the other costs — in the form of lower stock prices, higher debt costs, layoffs and reputational damage — that failed CEOs incur.

Corporate directors could do their companies, their shareholders and the economy a huge favor by crafting simple, modest severance packages that aren’t golden parachutes.

It’s time for corporate boards to simply say, “No more.” Despite the myths surrounding leadership and the cult of the CEO that has developed over the years, the pool of possible corporate leaders is much bigger than corporate boards may believe. There are thousands of accomplished, brilliant and inspiring people who would work hard, lead by example and get real results — without a big payoff for messing up.

Like most people who live in the real world, I believe that people should be rewarded for a job well done.

But if you do a terrible job that costs everyone money and leaves your employer worse off for your having been there, you deserve to be fired. And if you get fired, you don’t deserve to walk away with a king’s ransom.

Jim Pavia is the editor of InvestmentNews.