When It Comes To Executive Severance, It's Time To Reverse PiggisH Policies

I hate to be so blunt, but there is probably no place where we see more abuse in public companies than in "negotiated severance" packages for CEOs. It is such an incredibly abused practice that investors finally are beginning to demand a say.

Verizon shareholders recently had a chance to vote on executive severance. A funny thing happened on the way, however: Can you believe that management recommended that Verizon shareholders vote against such an appalling principle as limiting exit packages for top management?

Elsewhere, Hewlett-Packard shareholders recently were unsuccessful in coming up with enough votes to limit severance packages for top-level managers. Management's argument for why it made no sense to adopt such limitations was that it would hinder the company's ability to attract talent. That might be true if HP were the only company to adopt such a policy. It wouldn't be true at all if all companies did so.

For evidence of just how piggish some of these characters can get, we need look no further than the top of the solution provider food chain. I'm talking, of course, about EDS, where failed CEO Richard Brown is collecting $37 million in severance after having been so successful at losing $24 billion in market value for shareholders in 2002. Oh, I nearly forgot. In addition to that $37 million, Brown will receive nearly $20 million in retirement benefits,not to mention that his options are all vesting.

Now that's what I call pay for nonperformance.

Brown, you may recall, was the same passionate guy who in early 2001 changed the severance policy for EDS employees, cutting the maximum number of weeks an axed employee would get in pay to just four from 26. He then proceeded to put thousands of employees out on the street with just four weeks pay to support their families. Hey, how else was such a top performer to ensure that he would get a fat severance for tanking the company if he didn't save a few bucks somehow?

Then, of course, we have the recently exposed retention bonuses and retirement-package guarantees that the executives over at American Airlines were getting at the same time they were asking union employees to take cuts of as much as 25 percent of their $50,000-per-year salaries. This exposure has thrown into question the ultimate survival of the airline.

We need government regulation that stops these abuses by putting strict limits on boards of directors' capabilities in doling out severance packages.

The fact of the matter is that public companies are anything but public. I began my career as a daily newspaper reporter and spent a great deal of time covering politics. The ease in uncovering information in government is incredible. The difficulty of getting at the truth about a public company is just as incredible.

We all know there is very little information to be gathered by looking at a company's quarterly numbers. Despite Securities and Exchange Commission regulations and certifications of the numbers by CEOs, there is still very little detail available and there are far too many ways to make things look better than they really are.

Why, for instance, do we only get to see the salaries and packages of the five top managers in a "public" company? What's so public about that? Why don't we get to see detailed spreadsheets about various divisions within large companies?

There isn't a month that goes by that we don't find ourselves reporting and writing about another one of these abuses in business. Until either shareholders begin to demand a say in these packages or a crusader in the U.S. Senate takes up this cause, we will hear about many more of them in the future.

Make something happen. I can be reached at (516) 562-7812 or via e-mail at [email protected].