Signing Bonuses for Execs Coming Under Scrutiny
The latest aspect of executive pay to come under the microscope: upfront payments to newly hired chief executives that are averaging $15 million each, according to a study released Tuesday.
These so-called golden hellos are a twist on the signing bonus, which has been around for decades, said Paul Hodgson, senior research associate at the Corporate Library, a Web site that tracks executive compensation agreements. This is the first time the Corporate Library has studied the upfront payments--now dubbed “inducement awards,” “make-whole” payments or other names--but they appear to be getting bigger and becoming more prevalent, said Hodgson, who wrote the study.
The study looked at 30 of the most recent signing bonuses, taken from a database of 1,800 major U.S. companies. The upfront payments averaged $15 million per CEO--ranging from $45 million paid to Gary Wendt when he was hired by Conseco Inc. in 2000 to $150,000 paid to Steve Odland in 2001 when he joined AutoZone Inc. Payments were made in cash, stock, additional contributions to supplemental retirement plans or in a combination of forms, Hodgson said.
These upfront payments became common in the tight labor market of the late 1990s and have flourished since.
“This is part of the high-stakes game that we’re in now,” said Robin Ferracone, partner in the Los Angeles compensation practice at Mercer Human Resource Consulting. “This was in response to the tight labor market, where companies determined that to wrest a CEO from his or her former company, a large sign-on payment had to be paid.”
Hiring away a CEO is complicated by the long-term incentive plans many executives enjoy. An executive who leaves early for another job may be walking away from tens of millions of dollars, said Jack Marsteller, practice leader for Towers Perrin’s Los Angeles executive compensation practice. Moreover, the executive also could be leaving behind retirement and supplemental retirement benefits, restricted stock and other expensive benefits.
The prospect of losing those payments has forced companies to either pay up or look for someone with less negotiating power.
However, the practice of paying millions in cash or stock has compensation critics saying that it’s just another way executives get preferential treatment, similar to massive stock option grants and huge retirement payments to former CEOs.
“It can be difficult to second-guess from the outside where a payment like this may be necessary,” said Ken Bertsch, director of corporate governance at TIAA-CREF, a mutual fund and pension company. “But these packages have become excessive. We may have overdone this notion of recruiting CEO superstars.”
