I’m generally a free market purist, even when it comes to executive compensation. That puts me at odds with a large part of society, including some of my fellow lean bloggers, but I have a firm belief that intentionally distorting the free market often leads to unintended consequences elsewhere. I don’t disagree that executive compensation is more than a little unreasonable at times, but I am also starting to see, slowly, the free market reigning in such excess.
However once again even I was thrown into a spot of angst yesterday when I read a news story on how the families of many CEO’s get massive payouts if the CEO dies unexpectedly. Most of us have significant insurance, but not to the tune of hundreds of millions of buckaroos.
You still can’t take it with you. But some executives
have arranged for the next best thing: huge corporate payouts to their
heirs if they die in office. Take Eugene Isenberg, the 78-year-old chief executive of Nabors Industries Ltd. If Mr. Isenberg died tomorrow, Nabors would owe his estate a
"severance" payment of at least $263.6 million, company filings show.
That’s more than the first-quarter earnings at the Houston oil-service
Ok, even I will admit that’s a tad excessive. The free market is starting to push back, albeit slowly.
Mr. Hall says death benefits have become more controversial in recent
years: "Shareholders say, ‘Why should we write a big check to a CEO
who’s been quite well paid all along?’ He should have bought life
I’ve had company-paid life insurance ever since I was a wee engineer a couple decades ago. It’s a common benefit even at small companies. I was a little taken aback when my first employer, a Fortune-20 that shall remain nameless even though it has been acquired/sold/divvied up a half dozen times, took out additonal 1x salary policies on every exempt employee… payable to the company. The reason was supposedly to cover the cost of replacement in the even of our untimely demise, but many of us had visions of hit squads whenever profits took a turn for the worse.
But here’s a really odd version of the death payout:
Companies often have "noncompete" agreements with top
executives that bar them from joining a competitor after they leave.
Shaw Group has one. The Baton Rouge, La., company would pay $17 million
to CEO James M. Bernhard Jr. "not to compete with us for a two-year
period following termination of employment," its latest proxy statement
The pay for not competing would still be due if Mr.
Bernhard were dead, a footnote shows. Shaw officials didn’t respond to
requests for comment.
Ok… I think that might be one little footnote the shareholders might want to scrutinize. Just like they are putting pressure on our lucky friend Mr. Isenberg of Nabors.
The size of Mr. Isenberg’s severance benefit has
contributed to boardroom tensions in recent years, according to people
familiar with the situation. They say directors have tried to
renegotiate the package but haven’t been able to come to an agreement
with Mr. Isenberg.
The Nabors spokesman, Mr.
Smith, denied there is any friction on the board. He said directors and
executives are "actively working to restructure" the contract and hope
to reach an accommodation that is in the best interests of shareholders.
It is time for a change. The shareholders get what they allow. If they don’t like how their investment is being used, they can take their money elsewhere, and they should.