PAUL HOLMES: The intensifying scrutiny over CEO severance packages is a topic PR pros must eye closely

Want to get rich quick in corporate America? Sure, you could work to build a world-class company, increase shareholder value, and eventually reap the rewards. But why wait around? Why go through all that hard work? Why wait?

Want to get rich quick in corporate America? Sure, you could work to build a world-class company, increase shareholder value, and eventually reap the rewards. But why wait around? Why go through all that hard work? Why wait?

You can get richer a lot quicker by screwing up, getting fired, and walking away with a massive severance package. The median compensation of America's chief executives actually rose last year - up 14% according to a Fortune cover story - at a time when the return of the S&P 500 was down by 22%. So much for linking pay and performance. But the real scandal isn't what CEOs earn while they're on the job; it's how much they walk away with after they're fired. Bob Nardelli, the former GE exec who is currently running Home Depot into the ground, provides a perfect example of what is wrong with the system. Nardelli receives a guaranteed bonus (an oxymoron corporate America now uses with no apparent sense of irony) of $3 million. Since Nardelli took over, the company's total return is down 43.4%. If Nardelli gets really lucky, he'll continue to destroy shareholder value until even Home Depot's board of directors can't take it any longer, and he'll be fired. For you or me, that would be a disaster. For Nardelli, it would mean a windfall. By some estimates, Nardelli could receive up to $82 million for failing so badly the board has to dump him. (It's almost impossible for Nardelli, or any other CEO, to be fired for cause because of the way their contracts are written.) Other CEOs are expanding their pension packages at the same time they are slashing those of ordinary employees. Delta Air Lines chief Leo Mullin has a pension that credits him with 22 years of service, even though he's been with the company less than six years. He would receive about $1 million a year for life if he walked away from the airline today - a sum that's protected even if Delta goes bankrupt. Meanwhile, employees learned in November that their pension plan was "unsustainable." Under a new plan, some will receive only half their previous benefits. How big an issue is this likely to become for PR professionals? Well, the UK is reportedly considering regulation that would rein in severance payments to CEOs. But the real pressure is likely to come from stakeholders, investors who are losing patience now that they aren't seeing such impressive returns and will likely demand greater transparency (companies do not currently have to report executive pension costs), and employees outraged at the iniquity. American Airlines' Don Carty won't be the last to lose his job over this issue.
  • Paul Holmes has spent the past 16 years writing about the PR business for publications including PRWeek, Inside PR, and Reputation Management. He is currently president of The Holmes Group and editor of www.holmesreport.com.

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