The kingdom of the Golden Parachutes: California

As we are focusing on who is getting these golden parachutes, we should notify that there is a third group rising besides the top managers and the students. In California the spotlight is changing from the executives to the union-protected government workers, causing the companies to leave California and settle in less-restrictive and less-taxed areas like Texas and Arizona. It is only a natural consequence that this reallocation is causing unemployment, in times that the states’ pension fund is at the brink of bankruptcy.

Nevertheless we can’t forget the executives. Although the government workers are rising, the managers are still paying themselves way too much, living a luxurious life including sex and drugs. It looks like California is getting out of control, but if even the government workers are participating, who can stop this crazy behavior? Regular people are paying and losing too much, I think it won’t take too long anymore before they decide to protest against this money absorbing habit. (Dailycaller)

Corien Staels

New kind of golden parachutes?

Sometimes a new education reform idea comes out of the blue…this time its a very strange one. According to Mitch Daniels (Governor of Indiana, USA), students who graduate early should receive an amount of money…a golden parachute.

His idea is to give these ‘early graduated students’ the money that would have been spent on their education if they had stayed in school the full 12 years. Normally, schools spend approximately $5,865.78 per student each year. So when a student can graduate in less than 12 years, why not give the money to the student? He or she could use it very well to further his or her education.

These payments would give students an extra incentive to study hard in high school and go on to college, with a financial boost of the state helping them. But is this realistic? Isn’t this whole idea making education ‘a rat race’, in which each student has to graduate as fast as they can in order to get the most money?

Nicolas Pollet

http://www.nwitimes.com/news/opinion/editorial/article_d19e2d9c-7d2f-571f-b11e-be8969abf46a.html

Nothing wrong with golden parachutes for European Commissioners?

I would like to react on what Kevin said in his ‘European guidelines to end golden parachutes’ blog.

These ‘European guidelines’ to end golden parachutes that Kevin talked about, are very hypocrite. On the one hand, the European commission wants to implement restrictions on the remuneration of CEO’s. On the other hand, they don’t want to implement restrictions on their own ‘golden parachutes’.

European commissioners continue to receive a salary for 3 years… after they have left the European commission. Most of these European commissioners earn between €19.900 and €24.422 a month. After leaving the commission, each of them earns 40 to 65% of this wage…each year, 3 years long.

One of the reasons (according to the commission) is that this ‘golden parachute system’ has to ensure ‘the independence of commissioners’. Rather odd, especially because the EU would like to limit managers’ golden parachutes and force companies to take drastic measurements when the business runs into serious problems…

Nicolas Pollet

http://www.elsevier.nl/web/10228991/Nieuws/Europese-Unie/Brussel-Niets-mis-met-opstappremie-eurocommissaris.htm

Corporate Governance in question

What Corien writes about the new corporate governance guidelines the Belgian government has agreed on is true, but I would like to indicate some failures in the execution of the decree. Some people say the law can easily be avoided by giving a justification why you cannot, as a corporation, give any information about the remunerations in your company.

Also the free will off the companies who applied to the code Buysse and the code Lippens disappears, these laws were just for the companies who wanted to make a good impression, so the advantage these firms have had the past several years, disappears right before their eyes.

The new law applies just to the listed companies , only these have to be honest about their remuneration policy. Subsidiaries of listed corporations, as well as the not listed corporations still have the freedom to give all the bonuses and golden parachutes they want. Is this the situation the Belgian government want to achieve?

Kevin Rokegem

sources: jobat & express

The British version of 'Say-on-pay'

The predecessor of the Say-on-pay law in the US was the UK. The British version of the say-on-pay law has been required since 2002 (8 years before the US). But the UK struggles with the fact that this law has a limited effect in the negotiations with the top executives. Because in the debate you have two sides: the pro-shareholder side and the pro-management side,  both contradicting each other.

Andrew lund (a law professor) says that they have to change the focus , if they want to have a bigger effect on the pay package. He suggests that the shareholders have to vote on the pay package before the CEO is hired , because when you vote against someone he can take that as an insult. And  when someone is insulted ,ther’s a chance that his work will suffer. But here appears the same problem as before (two sides problem). I hope that these two sides find their golden way through this remuneration problem.

Bram T'Hooft

source: www.theconglomerate.org/2010/08/brett-mcdonnell-on-lunds-say-on-pay.html

New ‘say-on-pay’ law could temper ceo pay

According to Corien’s reaction on Kevin’s message, I wanted to know how America struggles with this kind of remuneration issue.  Starting in 2011, the SEC (Securities and Exchange commission) will give the institutional investors a vote on the remuneration package of top executives at the U.S. corporations. But the vote is non-binding and the companies aren’t obligated to follow the results of the voting. Although these weaknesses, the new ‘say-on-pay’ law is expected to have a great impact on the relations between top executives and the shareholders. (Because of the embarrassment if a company ignores the wishes of their  institutional investors .)

In addition of this new ‘say-on-pay’ law, the SEC made a controversial director election rule by giving shareholders the power to elect one or two director candidates onto corporate boards. This new rule provides the shareholders of  more power in behind-the-scenes negotiations with top executives (for a normal pay package). I look forward to see the results of these new guidelines at the end of 2011.

Bram T'Hooft

( www.marketwatch.com/story/new-say-on-pay-law-could-temper-ceo-pay-2010-08-26 )

The end of the golden parachute empire, or not?

Kevin talked about European guidelines to limit golden parachutes, in the mean while, Belgium is thinking about strict prohibition of these parachutes. Although many politicians have already announced they want a total prohibition of the famous golden parachutes, Belgian Parliament has not yet made any legislation what so ever. Are they afraid the financial top and other influential managers will turn against them?

Even though a new Corporate Governance Code for listed companies, which forces to include in every new contract with top managers the decision on severance pay, was presented, the golden parachutes still exist due to the lack of a new legislation. The code says that top managers have to specify that severance pay awarded when there’s an early termination of the contract should not be more than a twelve months’ remuneration.

The difference between the Corporate Governance Code and legislation is that the CGC is not obligatory; it just provides guidelines for listed companies what means the impact isn’t that big. Maybe if the European Union would define its guidelines, Belgium can step it up as well! (hg.org)

Corien Staels

European guidelines to end golden parachutes?

For all the support the governments of the European Union have given to the companies who suffered from the economic recession, the European commission wants to implement restrictions on the remuneration of CEO’s.

60 percent of the 27 EU countries demand disclosure of bonus policy and two-thirds would like to have more details about directors’ pay. With these instructions the EU would like to limit managers’ golden parachutes and force companies to take drastic measurements when the business runs into serious problems. The guidelines would recommend that bonuses for CEO’s are restricted to a specified percentage of overall remunerations to keep the managers from running away with the big money while the business is on the edge of bankruptcy.

So the governments are trying to protect the tax payer’s money to go directly to the pockets of the top directors of the big corporations, but nothing is quite specific so far.

Kevin Rokegem

The Guardian

Going down, Hollywood-style

Every well known company has its own DNA, a way of solving problems and doing things that sets them apart from the others. So has HP, an influential high-tech company founded by Bill and Dave in a garage with no more than $538. But what if ‘the HP way’ known for high ethical standards and good behavior starts to fail?

In the 1990’s HP started adding Hollywood figures to the leading people of its company, mostly women, for example Carly Fiorina who made the company lose half of its value and Patricia Dunn who got involved in a spy scandal… As you may see not such a good call, until they hired Mark Hurd. Hurd was not a sexy woman but a nerdy-looking numbers guy who became chief executive in 2005 and doubled the share price while cutting costs.

As any other Hollywood deal he also made mistakes and received $30m to leave the company, without answering questions on why he had to leave, other than a vague remark about a complaint towards him. As HP is getting lots of complaints towards the large amount of money, he might have been the only one worth this money. (The Economist)

Corien Staels

Laverty got $1M 'golden parachute'

Stephen Laverty, who is  the former  Northeast Health System president and ceo collected more than 1 million dollar from the hospital  where he was fired. The golden parachute included a settlement package of more than a year of salary plus one month. But according to public disclosure documents, the Laverty golden parachute could have been larger.

When a journalist called Stephen Laverty, he said: “ I have no understanding of what you are talking about.” A spokeswoman of the Northeast health system said she couldn’t give  more information about this case. Everybody had to maintain silence.

Laverty kept strained relations with politicians and had a lack of communication with the public. He also didn’t allow the distribution of contraceptives in times of soaring teen pregnancies. These are a few of examples of the management issues of Stephen Laverty. In September 2008, Paul Galzerano a friend of Laverty and a former vice president at Winchester Hospital was arrested on receiving stolen property charges. But this June Mr. Galzerano was accused of bribery charges in an alleged kickback scheme tied to the $50 million expansion of Beverly Hospital.

After Galzerano was arrested, doctors and nurses started to call for Laverty’s lay off. Since the resignation, the relations between employees and management are fine, but the financial debt isn’t.

Bram T'Hooft 

source: http://www.gloucestertimes.com/local/x1899098808/Laverty-got-1M-golden-parachute

Odland’s Golden Parachute

Steve Odland, who is CEO of ‘Office Depot’ (a company selling office products and office furniture) since 2005, is planning to leave his job. But like most CEOs…not for free. According to a SEC filing (Securities and Exchange Commission) he will receive $5.2 million in cash severance and a $5 million retention award. And if you think this is still not enough…Mr. Odland will receive the ‘pro rata portion’ of his 2010 earned bonus.

Not bad, especially when you know Odland earned $1 million a year in salary from 2007 to 2009. Most of his long-term options are ‘underwater’, this means that the exercise price he would pay is higher than the shares are trading for on the open market.

According to SEC fillings, Odland has 1.76 million shares of Office Depot, that’s worth $8.36 million at this moment. But his actual net will be different, depending on what he paid for the shares and when he sells them. Quite nice ‘golden parachute’, don’t you think?

Nicolas Pollet

Source: http://www.bizjournals.com/southflorida/blog/2010/10/odlands-golden-parachute.html

The unfairness of the recession

Everyone knows the economic slump in 2009 was a hard time for companies and employees. Recent studies however have shown us how unfair the great recession actually was.

According to a study of the IPS, the top 50 companies who laid off the most worker, rewarded themselves with 42% more salary than the average company during the crisis. Schering-Plough’s CEO as example had become a golden parachute of $33 million, then again 16 000 workers lost their jobs. Even more appalling is the fact that in 2009, some companies even paid more bonuses than taxes, mostly by bringing elaborate tax avoidance schemes into play.

Kevin Rokegem

link: The Guardian

How golden can these "golden parachutes" get?

Another CEO has left his company, this time we’re talking about Robert Nardelli. The chairman and chief executive of Home Depot is receiving about $210 million in cash and stock options, including a $20 million salary and retirement benefits of $32 million, the amount they agreed on in 2000 when he joined the company.

But do all shareholders agree with the board? Apparently not. A firm which researches the compensations executives get, even declared Nardelli is in the top 12 of best earning chief executives of the worst performing companies. The shareholders of Home Depot agree this golden parachute is way out of control, but turning to the board of directors doesn’t get them any closer since the board fully supports Nardelli and doesn’t want to give any answers.

As shareholders are complaining, they do admit he has been of good help considering he expanded the wholesale and took the company over the boarders. But this clearly wasn’t enough, Nardelli may have expanded the company but he hasn’t had much effect on the stock price. As a consequence he is leaving all this shareholders to think “why?” without a reasonable answer. (Washington post)


Corien Staels 

Is Hayward's 'Golden Parachute' Relatively Modest?

Do you remember the disastrous oil Spill of BP a few months ago? Tony Hayward, who was CEO of BP at the time, often gave press conferences to explain the situation of the oil leak in the gulf of Mexico. After this disaster, Tony Hayward decided to leave the company, but not for free... He stands to walk away with a golden parachute that includes about $1.5 million in salary and a pension worth $17 million. Some people might find this quite normal, but most people think this is not acceptable... especially knowing one of the highest  ‘golden parachutes’ in history was $120 million.

According to Paul Hodgson, senior research associate at The Corporate Library, golden parachutes like the one of Tony Hayward are pretty standard in the U.S. Golden parachutes averaging about $40 million are quite normal these days in the U.S.

People who think these bonuses are unacceptable and not tolerable (especially in this case…think of the severe consequences for nature), don’t have to worry anymore.

Part of the ‘Dodd-Frank financial reform bill’ that was signed into law, indicates that shareholders have to decide (by voting) the amount of money a CEO should get when leaving the company.

Nicolas Pollet        

Source: http://www.npr.org/templates/story/story.php?storyId=128804286

Profumo’s €40m golden parachute is just nonsense

Alessandro Profumo was a chief executive of Unicredit in Italy.  He has helped to transform  Unicredit from a small lender into an international powerhouse. But when he was pushed away from his job, he received a golden parachute of €40 million. This kind of bonus isn’t quite normal of can it even be tolerated ?  

You can’t blame only Mr. Profumo for this offence, after all , the board approved to give such a major handout. The board of Unicredit has to justify why they gave Mr. Profuma  that amount of money.  They came up with 3 arguments. First, Mr. Profumo earned it for all his imput. Second, Mr. Profumo had a contract that untitled  him to three years pay. The last argument, The chief executive before Mr. Profumo received a golden parachute of €30 million ( Mr. Profumo has to do better , what had you expect?).

But there can not be a justification for such a bonus. As an investor in Unicredit you must put a lot of money in this company and have al lot of patience  if you ever want to receive this kind of money ( I think it is impossible).  The board and chief executives should  consider if the money is all worth it ( even unnecessary layoffs )? 

Bram T'Hooft 

(http://www.ft.com/cms/s/0/b06c0df6-e05e-11df-99a3-00144feabdc0.html)