Severance pay practices (often referred to as “golden parachutes,” particularly for high-level executives) are a particularly controversial part of the modern economy, especially since it seems like every day there’s a new story about a CEO who drove his or her company into the toilet, laid off thousands of workers for a short-term stock boost, ignored and insulted the shareholders, and still walked away with millions of dollars of cash in the form of “performance bonuses.” Here are 10 examples of severance packages either big enough or unwarranted enough to angry up the blood.
As Secretary of the Treasury at the beginning of the great 2008 financial crisis, Henry “Hank” Paulson was primarily known for a sort of bizarre optimism and can-do attitude when faced with the fact that the entire global economy had just crapped its pants and exploded. Paulson may have been trying to keep everyone thinking positive instead of just jumping out of the windows over Wall Street, or he may have just been secure in the knowledge that whatever happened to everybody else, he was still set for life. You see, when Paulson was recruited from the leadership of Goldman Sachs (which some believe received special preference and extra money during the Paulson-supervised bailouts) he was required to sell his $500 million in GS shares, but through the use of an unusual loophole pointed out by his fellow Goldman Sachs execs, he paid absolutely no taxes on the transaction. Heck of a job, Hankie!
CEO of Hewlett-Packard from 2000 to 2005, Carly Fiorina was described by some in the American technology industry as “the anti-Steve Jobs:” a tech executive with little understanding of the products her company sold, concerned primarily with share-price-improving financial manipulations while alienating her engineering staff and disappointing existing customers with shoddy products.
As a result, HP’s board of directors gently suggested that she be transferred to another position within the company. When Fiorina refused, she was more or less kicked out with a reported $21 million severance package. What many reports missed, however, was that Fiorina actually left with more than double the amount due to the liquidation of a pension, various grants, and 826,000 shares that were ironically worth more than ever now that Wall Street had heard she was no longer running the company.
Fiorina’s post-HP career was limited to a number of board memberships, a position as a booster and possible VP selection for John McCain’s fiscal policies during the 2008 election, and a disastrous 2010 California Senate run against eternally incumbent Democrat Barbara Boxer. Her campaign slogan? “Carlyfiorina Dreamin.’” Yeesh.
Meg Whitman and Carly Fiorina are such similar stories that reading about them induces a mild sensation of deja-vu. Two women in charge of big-name tech companies (in Whitman's case, eBay during a major boom), presented as examples of successful Republican women, advisors to and promoters of McCain in 2008 and, as it turned out, completely politically inept when it came time to campaign for themselves in 2010.
Whitman’s differences are chiefly that she was running for governor rather than senator and that she may have been responsible for some degree of eBay’s success, although it’s impossible to find an analysis that isn’t biased in one direction or another.
What is certain about her eBay tenure was that she was responsible for exporting 40 percent of eBay’s jobs overseas to countries with lower minimum wages and fewer rights for workers, and while Whitman formally “resigned” in 2007 with a two-year severance-pay allowance, she remained on the payroll until 2010, even receiving office space and IT/secretarial support for her private operations. During that time, eBay laid off a further 10 percent of its workforce, further boosting the prices for Whitman’s remaining eBay shares.
Unlike certain other banking big shots like Jamie Dimon or Lloyd Blankfein, Tom Montag of Bank of America (most recently) has managed to keep an extremely low profile, which doubtlessly suits him right down to the ground in that he doesn't have to worry so much about someone burning his house down. Formerly a Goldman Sachs executive, he jumped ship for Merrill Lynch in mid 2008 when said company bought out his compensation package for more than $10 million.
Montag barely had time to set up that little swingy-ball-paperweight thing all financial executives have when Lynch was bought out by Bank of America, netting Montag a further $30 million as his options were bought out as well. Montag is currently President of Global Banking and Markets at Bank of America, and the highest-paid executive in the company.
One of the few executive-level women on Wall Street, Ina Drew was JPMorgan Chase's chief investment officer, reaching the position after 30 years of work at that agency. Drew was considered an excellent risk-manager at what was considered one of the smartest and best-run banks at Wall Street, so when it was discovered that JPM had managed to lose at least $2 billion (or possibly as high as $9 billion -- the hedge that lost so poorly was so remarkably complex it's still not certain how badly it hurt the bank and its investors), a sacrificial scapegoat was required, and CEO Jamie Dimon even went in front of Congress to half-apologize and claim that as much as two years of pay would be "clawed back" from Drew as a punishment, essentially the opposite of severance pay. Or at least that was what was supposed to happen. Drew was allowed to "decide to resign" instead of getting fired, meaning that her total of $21.5 million in shares and options could be (and were) cashed in before the bank could legally "claw back" a penny. Oops! Oh well.
Previously a General Motors analyst during the '80s (not exactly a bright period for GM), Stan O'Neal joined Merrill Lynch in 1986 and worked his way inexorably to the top, often through merciless layoffs and ruthless office political campaigns. 2003 found him as CEO and Chairman, one of the first African-Americans to hold such a position on Wall Street. He used his newfound power to kick Merrill Lynch's risk-averse and job-security-oriented corporate culture to the curb.
O'Neal dreamed of making the kind of money Goldman Sachs made, and wasn't afraid to take huge gambles to do so. On the short-term, the practice seemed to be paying good dividends, but when the sub-prime time-bomb went off, Merrill Lynch found itself shorted a full $8 billion. O'Neal, knowing that the loss was almost entirely his fault, privately approached Wachovia Bank for a life-saving merger, a violation of the Board of Directors' rules that got him kicked out, but not without an enormous $161 million payout consisting of Merrill Lynch stock and options that had yet to lose most of their value.
Stanley O'Neal remains somewhat infamous among his subordinates as being an incredible dick to everybody, even by finance-industry standards, including using his personal security staff to reserve an entire bank of elevators for his own use at Merrill Lynch offices. Today he is killing time on the board of directors at Alcoa, another gigantic and seemingly unsinkable company that should probably be pretty worried about that fact if they know what's good for them.
A 30-year veteran of Pfizer Inc. and recipient of the Woodrow Wilson Award for Corporate Citizenship, Henry McKinnell may be one of this list's most apt examples of the Peter Principle, i.e. the idea that any organization that promotes an employee based on their ability will eventually promote said employee above their ability, usually summarized as "employees tend to rise to their level of incompetence."
McKinnell did well by Pfizer right up until he was named CEO and chairman in 2001, where he embarked on a program of confusing and expensive stock-for-stock transactions that accomplished little beyond lowering Pfizer's share price from $50 to $30 over the five years he ran the company.
The board of directors eventually gave him the boot, but found they couldn't stop him receiving a combination of salary, long-term-incentive payouts, stock options, and (bizarrely) bonus pay that came to roughly $188 million. The only way to get any of that money back was if McKinnell actually gave it back, which was unlikely to happen, even after a shareholder-sponsored banner plane overflew McKinnell's last board meeting towing the desperate plea, "GIVE IT BACK, HANK!"
By one way of measuring things, Bob Nardelli was a great CEO for Home Depot. Revenue and sales almost doubled under his reign, and his belief in aggressively applying the Six Sigma management techniques he'd learned from Jack Welch at General Electric resulted in a corporate organization that was significantly more streamlined and efficient than before.
For Home Depot shareholders (and customers), however, Nardelli was less of a benefit. Nardelli had no retail experience, and among his cost-saving efficiency measures was to replace full-time craftsmen working at his stores with part-time minimum-wage laborers who may or may not have known what the hell they were doing. This and other dubious cost-cutting methods hurt Home Depot's customer-service reputation, allowing archrival Lowe's to make serious inroads which lead to a doubling of their stock.
Home Depot share prices remained stagnant, and Nardelli was clearly not concerned about what the shareholders thought of him - at the first annual meeting with Nardelli, shareholders were allowed only a minute apiece to voice their concerns. In spite of this long-term damage to the Home Depot brand, Nardelli's short-term performance netted him a total severance package of around $223 million.
Goiterrific Exxon (and later ExxonMobil) CEO Lee Raymond was one of the loudest of the many oil-industry voices insisting that global climate change was a myth and that the effects of the petroleum economy on the environment were overstated, earning him the criticism of many in the press and exposing his company to a degree of controversy that shareholders weren't entirely happy with.
His 1993-2005 tenure as CEO was marked by steady but not terribly remarkable growth, and his $321 million severance package was characterized by one University of Delaware economist as having "received Rockefeller returns without taking the Rockefeller risk." As "taking the Rockefeller risk" could mean anything from having an oyster dish named after you all the way to dynamiting opposing companies' oil refineries, it's possible that ExxonMobil was just playing it safe with this one.
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John F. Welch, popularly known as “Jack,” is possibly one of the most successful businessmen in history, and a legend among the executives and staff of General Electric, and not just because he almost got fired by accidentally blowing up part of a GE chemical plant a year after he first joined the company. In 1972, only 12 years after that incident, Welch had risen through GE’s labyrinthine bureaucracy from a position as a junior chemical engineer to one of the company’s many vice presidents.
Ten years later, Welch was CEO and determined to strip the excess layers of bureaucracy and waste from the company. While not the inventor of the famous Six Sigma efficiency process, Welch was one of the first to popularize it in America, and while some criticize his lack of concern for shareholder value or employee pay, his hard-headed, confrontational management style has made him a celebrity of sorts in the business world, and his work at GE raised the value of that company roughly 4000 percent.
Why is he on this list? Simply because his total payout, as well-earned as it is, ended up being a staggering $417 million, and it could have been even more had he not renounced the benefits of a GE retention package that attracted unwanted media attention, a lesson that some other people on this list could stand to have paid attention to.