Daily Lessons from Life 24 August 2010 - CEOs and their (huge) severance packages

"CEOs and golden parachutes - August 24, 2010 AsiaOne.com

CEO Mark Hurd's controversial exit from tech giant Hewlett-Packard has raised another furore about large severance packages for CEOs of multi-national companies.

While not the most ostentatious in terms of amount, combined with the circumstances of his departure and falsified expense records, it raised plenty of eyebrows."

This is a surreal situation that should have invited mocks and derision if human being has the right sense of 'how much a person is paid' at the get-go stage. Unfortunately, someone somehow felt that CEOs are such a rare talent that they can, on their own, turnaround the fortune of a company WITHOUT the help of the other employees of the companies they headed, and it becomes a NORM!!

This is followed by open and seemingly very reasonable justification of why CEOs should be paid MORE than 100x the lowest paid employee, and be paid handsomely again should the CEOs be asked to leave, even for doing the wrong things or delivering bad results!! The reason? CEOs' job is very tough. The stakes are high. They have too much to lose. They faced enormous challenges and uncertainty and the risk to fail is very high. Etc. So, the rest, like they said, is history. It is NOW an acceptable practice to have golden parachute in the CEO's employment contract. In fact, IF you DON'T have one in your contract, you MUST NOT be a very good CEO!!

Lessons for me are:

1. once an unreasonable excuse is created and accepted by the 'pioneer', those that come after will always try to hitch a ride on it!;

2. the 'bad' practice will NOT be broken until someone has the moral courage to say: "NO. This is wrong!! I cannot be paid 100x the lowest paid employee and I should not be paid multi-million when I am asked to leave the company for violation of ethical code of conducts or brought big losses to the firm!". It will be extremely hard to do that as the stakes are simply too high. Why would anyone want to turn away such 'parachute'?;

3. if the interested person with the right moral courage does not emerge, it is then the responsibility of the Board of Directors to make that brave decision. If the CEO is that good, why should he or she be even worry about being asked to leave due to poor performance? The Board of Directors must take up the challenge and say: "There can only be parachute, of a reasonable amount, if you, the CEO, is fired for unreasonable termination!".

Again, I am being idealistic. The members of the BOD are also CEOs of some other companies. Some of them may not have the right ethics to begin with. It is less likely they will set lower total compensation package as their own pay package is derived from the so-called "Market Rates"!!

The incestuous relationship simply means this absurd practice will continue for a while...