9/13/2011 12:13 PM ET|
You're fired -- here's $9 million
Sacked Yahoo boss Carol Bartz lashed out at the company as she walked out the door with parting gifts most folks would envy. But as CEO perks go, $9.4 million in severance is pretty chintzy.
Earth to outgoing Yahoo CEO Carol Bartz: Yes, it's lousy to be fired. But that's no excuse for losing your cool and going on a foul-mouthed, public tirade.
Especially since Yahoo (YHOO, news) is handing you a sweet golden parachute as you walk out the door. Bartz leaves with nearly $10 million in severance for a job she held just 30 months. That's about $78,000 for each week worked -- a parting gift a lot of laid-off employees would love to have.
And that's after huge paychecks for what the company, and a lot of investors, had to consider mediocre performance.
If there's any consolation for Yahoo's shareholders, it's that Bartz's plush goodbye isn't unusual for CEOs squeezed out of the front office. In fact, viewed from the perspective of a modern, highly paid chief executive, you might even call it stingy.
Bartz's parting shots
Certainly, millions in severance after earning great pay didn't satisfy Bartz.
In case you missed it, after getting the news last week that she had been axed, the outgoing Yahoo CEO wasted no time unleashing a profanity-laced attack on her former employer. She came off as more like a guest on "The Howard Stern Show" than a polished CEO worth the megamillions she was pulling down.
The tamest part of the assault, launched in an interview with Fortune magazine: calling the Yahoo board members who dismissed her "doofuses." Things just went downhill from there, with Bartz saying the board "f___d me over," and taking a profane shot at Yahoo board Chairman Roy Bostock for using a script to fire her over the phone.
That's admittedly a lame way to dismiss someone, but -- ouch! No doubt this will come up in her next job interview.
I do understand why Bartz is miffed. "Most executives, even the ones who are very secure, don't like being fired. This is a terrible experience for them, just like it is for anybody," says Jotham Stein, a Silicon Valley employment lawyer who has represented more than a few axed executives.
But let's be honest. Few of the folks reading her statements are going to shed tears for her. Financially, she's going to be fine.
As I mentioned, she's leaving Yahoo with $9.4 million in severance, as calculated by the compensation research firm Equilar, of Redwood Shores, Calif. (Press reports put it a little over $10 million, but after a certain point, who's counting?)
Her pay for this year has not yet been disclosed, but she earned $59.2 million in pay during her first two years on the job -- about $8.3 million in cash, the rest in equity, according to Equilar.
And during her 30-month stint, the Internet giant stumbled badly.
Yahoo sales fell 10%, to $6.46 billion, in Bartz's first year on the job, 2009, even though the economy came out of recession midway through the year. Then revenue fell by 2% last year. And sales plummeted 25% to $2.4 billion in the first six months of this year. Yahoo stock rose only 12% to $13.61 from the time she started in early February 2009 to the day before she was let go, while the Nasdaq advanced 70%.
Given those results, a $9.4 million farewell would sound pretty good to the millions laid off during the recession. But from the front office, things look quite different.
The CEO sweet deal club
In fact, compared to the size of the severance packages given many high-profile CEOs squeezed out in recent years, Bartz's payout is low:
- Michael Ovitz got $38.9 million when he left Walt Disney (DIS, news) in 1997, after just 14 months on the job, according to Equilar. This included salary and bonus pay owed through the length of his contract.
- Former Home Depot (HD, news) CEO Robert Nardelli walked away with a $20 million cash severance payment after he got pushed out of the company in early 2007, says Equilar. Including goodies like accelerated vesting of deferred stock awards, he collected an estimated $120 million on the way out the door, says GovernanceMetrics, an Independent corporate governance research firm.
- Former Pfizer (PFE, news) CEO Henry McKinnell got $14.2 million in severance, including a pro-rated bonus, when he got squeezed out of pharmaceutical giant in 2006, says Equilar. But if you throw in deferred compensation and pensions, he left with just shy of $213 million, according to GovernanceMetrics.
- Former Hewlett-Packard (HPQ, news) CEO Mark Hurd got a cash severance payment of $12.2 million when he stepped down in 2010 after the company said he had falsified expense reports to conceal a relationship with a female contractor, who accused him of sexual harassment. Combined with options and restricted stock he got to keep, the amount he got could be worth two or three times that much.
Where all the CEOs are above average
Such fond farewells will strike many people as simply unfair. They also ring alarm bells with the big institutional investors who look closely at pay when assessing companies. Like any payout not linked to performance, such packages do nothing to help shareholders, says Aeisha Mastagni, an investment officer at the California State Teachers' Retirement System, who follows corporate governance issues like executive pay.
And, like lavish executive pay overall, such payouts can be a sign of weak boards of directors that aren't looking out for shareholders, say the pay experts.
The typical response I get from companies about escalating CEOs pay and perks amounts to finger-pointing. They say they keep raising pay because everyone else is doing it; it takes huge numbers to compete for talent.
"There's a race to the top, or the bottom, depending on how you look at it," explains Lisa Lindsley, director of capital strategies at the American Federation of State, County and Municipal Employees. "You get companies that want to benchmark their compensation above the median, and that just drives up the median."
This is a sort of Lake Wobegon logic, where all CEOs are above average and thus entitled to above-average pay -- which means pay spirals higher and higher. High severance pay is the flip side of this. Above-average CEOs never fail; those who don't deliver are almost always dismissed without cause, letting them collect big dollars on the way out.
There are ways for shareholders to fight back. They can vote against directors on board pay committees that cook up crazy pay plans. And they can also vote "no" in "say on pay proposals" -- a yea or nay vote on executive pay plans that companies now have to offer shareholders annually. But too few shareholders exercise these rights.
Which brings us back to Yahoo.
Earlier this year, the shareholder advisory firm Glass, Lewis & Co. chastised Yahoo for an executive pay policy which "has consistently failed to align executive compensation with performance." In light of this disconnect, the firm said, shareholders should be "gravely concerned" with the company's executive compensation program. Glass Lewis put Yahoo on its "Overpaid 25" list of Standard & Poor's 500 Index ($INX) companies with the worst pay-for-performance practices.
Yet only 29% of shareholders voted against Yahoo's executive compensation plan earlier this year.
Bartz's high-paying farewell
Yahoo declined to comment for this story, but, according to company filings, Bartz was fired without cause. That ensures she'll get her severance, even if it doesn't seem right to some.
The payout is "laughable, considering her performance," said Eric Jackson of Ironfire Capital, which holds a big stake in Yahoo. "I don't think she's entitled to anything. Two months' salary, tops."
Given her level of pay, a $10 million severance package is "unconscionable," echoed Brandon Rees, a corporate governance expert at the AFL-CIO Office of Investment, which also has a stake in Yahoo.
And while Bartz has always had a reputation as a free-speaking CEO, some wonder whether her farewell tirade could cost her. "It's been wild to watch. It's been like TMZ meets CNBC," says Jackson. "I would expect it from a 26-year-old engineer who gets fired and sends a flaming email on his way out but not from a CEO."
There have been reports that her public broadside against Yahoo, littered with four-letter words, would put her severance pay at risk. Like most employment contracts, hers contains a non-disparagement clause prohibiting her from bad-mouthing her former employer.
But as harsh as her words were, it's not clear they rise to the level of disparagement that actually hurts the reputation of Yahoo or its board, says Stein, the employment contract attorney. "(Yahoo) could potentially bring a lawsuit, but it would be unusual for a board to do that," he says.
Besides, a lawsuit may not be the best use of the company's time, at this point. "The board of a publicly traded company that is stagnant should be focused on running the company, not fighting with its ex-CEO," says Stein.
After all, there's another above-average CEO for them to hire.
At the time of publication, Michael Brush did not own shares of any company mentioned in this column.
Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.
VIDEO ON MSN MONEY
I am applying for your open position of CEO. I am a very capable person and can drive your company into the ground for a total compensation package of $1 million, a real bargain in today's world.
I am waiting for your reply. Sincerely, Kanrai
This is the kind of crap that has been and is tanking our country, this over the top compensation of incompetents. Get fired for doing a bad job and get millions out the door ?
She only got 9.4 million? Surely she deserved more! 9.4 billion would have been a lot closer to what she deserved with her unique qualifications found no where else in the known Universe. Damn Yahoo, yet one more huge company paying slave wages to their top talented employees. What a rip off! How will this poor former CEO ever survive in this cruel, cruel environment on Earth????? Let's all join together and boycott Yahoo and pray for the survival of this poor, poor mistreated and underpaid former employee. I almost want to cry!
Where's the part of the article that says how many jobs they need to cut or how much work has to be outsourced to other countries to be able to pay these severance payments GREED is what got us to this point and greed is going to be what brings us down. I say a prayer for my children and there children every day so that some day people will drop the ME FIRST attitude and do what's best for everyone. As long as the people running this country keep running it the way they are running it I'm afraid all my prayers are in vain. I hope not!
These CEO's get paid in stock...and Mitt Romney wants a zero percent tax on long term cap gains...so all those CEO's who get paid in stock will get even more free money..and the US treasury will lose billions in tax revenue. But don't dare call it a class war.
You think this is bad? You should have seen what Home Depot panned out for 'Nardhead' Nardelli who single handedly almost brought Home Depot down with his GE practices which he was also the CEO. OVER $211,000,000. !!!!!!!!!!!!!!!!!!!!!!!! as severance. Then he became the CEO of Chrysler. Don't know what he got for severance, but he was one of the clowns that showed up in DC with his private jet, to answer to congress with a couple of other CEOs. We need homegrown CEOs that have not forgotten where they came from, and to give back to the people within the company. We have heartless, greedy, ruthless, and brainless CEOs and staffing at the top, and who put them there? The same exact group of people that hired them in to insure their cut of the pie when they leave, separate, get fired, etc...
It makes me sick to think of the amount of money these people make. Did they invent a solution to the oil crisis or global warming?
Nope. Just playing money games and complaining about it.
earned almost 60 million in two years working there.
What do you do with that amount of money?
Its true that the top 1 percent of everyone makes 90 percent of the money.
I say tax them at 80 % and build lives for the homeless.
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