Executives Still Dangle by Lucrative Parachutes
Last decade’s tidal wave of takeovers left a residue of severance agreements across corporate shores. All during the 1980s, executives, fearful of losing their jobs in a hostile bid, urged their boards to approve massive “golden parachutes” to key employees who got canned by a new owner.
Although hostile takeovers have ebbed in recent years, the severance agreements they spawned have continued to flourish and proliferate. There are now even agreements that allow the executive to get the cash payment without the once-requisite “change in control.”
Indeed, many corporate executives receive a big financial boost by getting booted out the door.
Consider David L. McIntyre, the former president of Fremont General Corp. in Santa Monica. Fremont, which hasn’t exactly stunned investors with its performance in recent years, “exercised its option” to terminate McIntyre’s employment agreement.
McIntyre walked away with $1.15 million.
At Century City-based Mercantile National Bank, longtime Chief Executive Terry Tomich had a falling out with directors connected with the entertainment industry. He severed his ties with the banking firm and took home $908,315--more than three times his normal salary.
The purpose of payments such as these is threefold, said Carl D. Jacobs, president of a compensation consulting firm that bears his name.
The first and best reason to have a long-term employment agreement or a golden parachute plan is to keep executives during a difficult period. Companies also want to provide a soft landing to an executive “who has been displaced through no fault of his own,” Jacobs said.
A third, position is using a golden parachute as an “inducement to terminate,” Jacobs noted. In other words, paying the executive to leave quietly.
Of course, in today’s difficult economy, golden parachutes raise some ire. Since this time last year, hundreds of thousands of lower-level workers have lost their jobs, and few have received more than a few weeks’ salary.
Some companies are apparently trying to narrow the gap by extending severance packages to more people. But still, the richest deals go to the top five or 10 most highly compensated officers.
For example, Calabasas-based Lockheed Corp., under siege by raider Harold C. Simmons for nearly two years, said it recently reduced the value of its top officers’ golden parachutes so that it could extend severance packages to more employees. Now the company’s 47,000 salaried workers would get an average of $44,000 if they were fired after a takeover. That’s up from $35,300 a year ago.
Still, the Lockheed executives who made all this possible would not walk away empty-handed. Chief executive Daniel M. Tellep would get a package worth more than $4.2 million if Lockheed were acquired and he were fired.
San Francisco-based PLM International has severance arrangements for all its employees. In a change of control, Vice Chairman W. Douglass Smith would get $1.81 million--only slightly more than the combined benefit for 92 other employees, estimated at $1.77 million.
Other noteworthy severance packages:
* International Technology Corp. said it will pay its four top executives three years’ salary and benefits if they leave after a hostile takeover. Murray H. Hutchison, chairman and chief executive, who earned $599,809 in 1990, would have taken home $2,392,000 had the parachute popped open in 1990, the company said.
* Robert H. Stevenson, president and chief executive of Trico Bancshares in Chico, is guaranteed at least five years’ pay. His base salary was $280,000 in 1990, making his parachute worth about $1.4 million.
* Sunnyvale-based Nanometrics Inc. is obligated to continue paying Vincent Coates for five years if he “is required to resign as chief executive officer of the company for any reason.” He earned $170,920 last year.
* Coast Savings Financial has employment agreements with its chief executive, president and all its executive vice presidents that provide each officer with three to five years of pay and benefits in the event of a change of control. If Coast’s chief executive, Ray Martin, had been forced to parachute out in 1990, the value of his severance package would have been $1,764,838, the company said.
