Expert answer:What are the inherent problems with compensation p
Answer & Explanation:Read the articles “Bad CEOs Who Walked Away Rich,” “Do I Hear $6 an Hour?,” and “The Fannie/Freddie Takeover”. The topic of discussion: What are the inherent problems with compensation plans for executives and for low level paying jobs (discuss both extremes)? Are these compensation plans “good business?” How do you suggest that we deal with these issues going forward?Bad CEO :Moyer, Liz. Bad CEOs WhoWalked Away Rich. Forbes.Do I Hear 6 an hour: Tucker, Reed. (2005, July). Do I Hear $6 an Hour? Fortune. Vol. 152 Issue 2, p201- 201. 1/3p. Retrieved December 3, 2013 from Business Source Premier database.Fannie May:, K. & Dvorak, P. (2008). The Fannie/Freddie takeover: Pay packages for CEOs likely to spur scrutiny. Wall Street Journal (Eastern Ed.) New York, N. Y. Sept. 9, 2008, A21.bad_ceos_who_walked_away_rich.docdo_i_hear_6_an_hour.docfannie_may.doc
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Bad CEOs who walked away rich
Charles Prince, who lost his job after leading Citigroup to the edge of a financial abyss, leaves a rich man — but
not nearly as lavishly rewarded as other failed executives.
By Forbes.com
Note to any of you CEOs out there who are negotiating departure packages: Make sure your options aren’t mostly
underwater before you exit the building.
Charles Prince, who on Nov. 4 announced he’ll be leaving his post as chief executive of Citigroup (C, news, msgs)
after saying the bank would need an additional $8 billion to $11 billion in subprime-mortgage-related write-downs,
will be leaving with a pension, stock awards and stock options worth a total of $29.5 million, according to a
regulatory filing. He’s entitled to a year-end bonus currently valued at about $12 million. He also gets an office, a
car and a driver for five years.
Citigroup will pay Prince no severance.
That’s far less than others. Take rival chief executive Stanley O’Neal, who “retired” from Merrill Lynch (MER,
news, msgs) last month after a similar blowup there, though with a hefty $160 million paycheck, most of it
accumulated in an employee pension plan that is available to many other Merrill employees. That includes $30
million in retirement benefits and $129 million in stock and option holdings.
•
Video: 12 subpar CEOs earning top dollar
Prince, in contrast, had a very small $1.7 million pension, while much of his pay over 29 years at the company has
come in the form of stock-option grants, and the majority of those have strike prices that are above the current
stock price, meaning they are worthless for now.
That could certainly change, however. The beauty of this scenario, at least as far as Prince is concerned, is that a
new chief executive could come in and clean up the place and send the stock price soaring, enabling Prince and
other ousted executives to cash in on their option grants before the deadline two years from now.
Academics from Northwestern University’s Kellogg School of Management researched the subject of severance and
concluded in September that it can be an incentive for risk-taking. The value of employee stock options “increases
when companies’ stocks are more likely to move significantly higher,” wrote Thomas Lys, Tjomme Rusticus and
Ewa Sletten. “The expected value of severance pay, on the other hand, increases when companies’ stocks are
more likely to fall and CEOs are more likely to lose their positions.”
More from MSN Money and Forbes.com
System encourages risk-taking
The pattern is not unique to this decade. In the late years of the go-go 1990s, several financial chief executives
raised eyebrows for taking away huge severance packages after driving their companies into the ground on risky
strategies.
Stephen Hilbert of Conseco (CNO, news, msgs), for example, took home an estimated $72 million even though
the value of the company’s stock during his tenure sank from $57 to $5 a share and the company ultimately ended
up bankrupt. Conseco’s misstep, on Hilbert’s watch, was buying home-finance company Greenpoint Financial just
before the last great subprime-lending blowup.
•
Slide show: Surprising 6-figure jobs
Then there was Frank Newman, the chief executive of Bankers Trust, whose aggressive push into technology
banking and lending, coupled with an unfortunately large position in Russian government bonds in the summer of
1998, brought the investment bank to the brink before being rescued in an acquisition by Deutsche Bank (DB,
news, msgs). He walked away with $55 million.
Supersized CEO exits
Executive
Company
Walk-away pay
Stanley O’Neal
Merrill Lynch
$160 million
Philip Purcell
Morgan Stanley
$43.9 million
Richard Grasso
New York Stock Exchange
$140 million
Douglas Ivester
Coca-Cola
$120 million
Robert Nardelli
Home Depot
$210 million
The rest of the list
Philip Purcell left Morgan Stanley (MS, news, msgs) after a shareholder revolt against him in 2005, and took
with him $43.9 million plus $250,000 a year for life.
And the winner is . . .
Richard Grasso, who headed up the New York Stock Exchange, took $140 million in deferred compensation and
the disclosure of that payment sparked a furor that led to his departure. The pay also provoked an investigation
and lawsuits, which are still being worked out. Grasso has vowed to fight.
Douglas Ivester of Coca-Cola (KO, news, msgs) took $120 million when he stepped down in 2000 in his mid-50s.
The departure was deemed a “retirement,” but Ivester had presided over a period of stagnant growth, declining
earnings and bad publicity.
•
In pictures: 10 billionaire family feuds
The big winner in the severance derby: Robert Nardelli, who walked away from Home Depot (HD, news, msgs)
with $210 million. He fixed up the home-products retailer using techniques he learned as an executive at General
Electric (GE, news, msgs), but by 2006, he was starting to seriously irritate shareholders. The final straw was
when he told the board to skip the annual shareholder meeting and prevented shareholders from speaking for
more than a few minutes. He was ousted in January 2007.
This article was reported and written by Liz Moyer for Forbes .com.
Do I hear $6 an hour? $5?
Reed Tucker. Fortune New York:Jul 25, 2005. Vol. 152, Iss. 2, p. 201 (1 pp.)
Subjects:
Bids, Web sites, Job openings
Classification Codes
9175, 9000, 6100, 5250
Locations:
Germany
Author(s):
Reed Tucker
Document types:
General Information
Section:
business life
Publication title:
Fortune. New York: Jul 25, 2005. Vol. 152, Iss. 2; pg. 201, 1 pgs
Source type:
Periodical
ISSN/ISBN:
00158259
ProQuest document ID: 869557431
Text Word Count
316
Document URL:
http://proquest.umi.com/pqdweb?did=869557431&Fmt=3&clientId=33159&RQT=309
Abstract (Document Summary)
A ruthless German employment website is provoking controversy by launching a rare attack
against quasi-socialist Europe’s sacred cow: the worker. The site, called Job Dumping, has a
simple premise: Employers offer jobs, including a starting salary, and eager workers bid against
one another for the position. The, uh, “winner” is the person who agrees to take the job for the
least amount of money.
Full Text (316 words)
Copyright Time Incorporated Jul 25, 2005
IT’S SUMMERTIME, AND IF there was ever a time to envy those darned Germans and French
and Swedes, it’s now. Look at them, with their four weeks (or more) of vacation and their short
workweeks. But not so fast: A ruthless German employment website is provoking controversy by
launching a rare attack against quasi-socialist Europe’s sacred cow: the worker.
The site, called Job Dumping (www.jobdumping.de), has a simple premise: Employers offer
jobs, including a starting salary, and eager workers bid against one another for the position. The,
uh, “winner” is the person who agrees to take the job for the least amount of money. Sounds like
an idea that would be right at home in cutthroat America, right? Sure enough, founder Fabian
Löw says that he plans to bring Job Dumping to the U.S. this fall.
Löw, 31, says he created the site in part as a political statement against Germany’s rigid, ruleencumbered employment market. Not surprisingly, since its launch in November, Job Dumping
has been criticized by German leaders and unions as hastening the race to the bottorn. Via email, Löw calls the powerful German unions “job killers” and defends Job Dumping as a way to
goose the economy in a country where unemployment hovers at 12%. “Lower wages generate
jobs for industries, companies, and households,” Löw says.
Some 20,000 Germans use the site, and 3,000 have landed jobs in mostly blue-collar fields,
including babysitting, machine repair, and bodyguard services. So far, major German companies
have stayed away, but Low says he hopes that larger U.S. firms will be more receptive-assuming
the concept doesn’t violate any labor laws, which Low’s lawyers are still investigating. Job
Dumping earns its money by being paid a percentage of a worker’s wages, between 0.8% and
3.9% of a full-time employee’s first month of salary. But, you know, maybe you’d like to offer
Löw 0.7%? Or 0.6%? – Reed Tucker
The Fannie/Freddie Takeover: Pay Packages for CEOs Likely to Spur Scrutiny
Kara Scannell and Phred Dvorak. Wall Street Journal. (Eastern edition). New York,
N.Y.: Sep 9, 2008. pg. A.21
Abstract (Summary)
The multimillion-dollar pay packages that the ousted chief executives of Fannie Mae and
Freddie Mac are due to receive could stoke a fresh round of election-year debate over
executive compensation.
»
Jump to indexing (document details)
Full Text (533 words)
(c) 2008 Dow Jones & Company, Inc. Reproduced with permission of copyright owner.
Further reproduction or distribution is prohibited without permission.
WASHINGTON — The multimillion-dollar pay packages that the ousted chief executives
of Fannie Mae and Freddie Mac are due to receive could stoke a fresh round of electionyear debate over executive compensation.
Freddie Mac’s departing chief, Richard Syron, could walk away with an exit package
totaling as much as $14.9 million, said David Schmidt, a senior consultant at James F.
Reda & Associates LLC, a compensation consulting concern in New York. That includes
a possible payment of $8.8 million to compensate for forfeiting recent equity grants.
A Freddie spokesman quoted Mr. Syron as saying he doesn’t “anticipate receiving nearly
that much.” A person close to Mr. Syron said he is unlikely to take the $8.8 million.
The exit package for Fannie Mae’s Daniel Mudd, including stock he already owns, could
total $9.2 million, Mr. Schmidt estimates. Mr. Mudd is discussing matters with the
government, said Robert Barnett, Mr. Mudd’s counsel. A Fannie Mae spokesman
declined to comment.
New York Sen. Charles Schumer said he is looking into what might be done about the
two CEOs’ exit packages. The Treasury Department and the Federal Housing Finance
Agency, which regulates Fannie and Freddie, haven’t discussed the matter. A
representative for the agency said: “We are working through the compensation issues and
have nothing to say at this time.”
Many top financial-industry executives have lost their jobs amid the credit-market
turmoil. The size of the exit packages for departed executives such as Merrill Lynch &
Co.’s Stan O’Neal and Citigroup Inc.’s Charles Prince also have drawn criticism.
Reducing the size of exit packages for poorly performing executives is tricky, said Pearl
Meyer, senior managing director at New York compensation consultant Steven Hall &
Partners. Employment agreements typically lock in exit-pay terms unless the executives
commit crimes that hurt the company, she said.
Still, companies are increasingly tying pay to performance, which could reduce the size
of payouts. Much of Mr. Mudd’s severance package consists of a bonus and performancebased share grant, which he may not receive, as well as accelerated stock awards whose
value has been torpedoed by the fall in Fannie’s share price, said Mark Reilly, a partner at
Chicago-based 3C-Compensation Consulting Consortium.
If Fannie’s board decides to slash the bonus portion of Mr. Mudd’s exit payout, the
executive could get between $5 million and $6 million, including an estimated $3.2
million in pension and a $1.98 million cash severance payment, said Mr. Reilly.
Similarly, it is unclear how Freddie will handle the bonus portion of Mr. Syron’s payout,
which Mr. Schmidt estimates at $3.9 million. Messrs. Schmidt and Reilly noted that the
two CEOs will leave with much less money than recent payouts to Messrs. Prince or
O’Neal, both of whom left amid huge losses at their companies.
Presidential nominees Barack Obama and John McCain have both been critical of high
executive pay during the credit crunch. Monday, Sen. McCain told a rally in Lee’s
Summit, Mo., that “we can’t allow” the Fannie and Freddie restructuring “to turn into a
bailout of Wall Street speculators and irresponsible executives.”
Last year Sen. Obama sponsored a bill that would give shareholders an advisory vote on
executive compensation, dubbed “say on pay,” but it didn’t go anywhere.
Indexing (document details)
Subjects:
Executive compensation, Chief executive officers, Presidential
elections, Mortgage companies
People:
Syron, Richard
Author(s):
Kara Scannell and Phred Dvorak
Document
types:
News
Publication
title:
Wall Street Journal. (Eastern edition). New York, N.Y.: Sep 9, 2008. pg.
A.21
Source type:
Newspaper
ISSN:
00999660
ProQuest
document
ID:
1550690631
Text Word
Count
533
Document
URL:
http://proquest.umi.com.libproxy.troy.edu/pqdweb?did=1550690631&sid
=3&Fmt=3&clientId=15382&RQT=309&VName=PQD
…
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