Top executives bounced all the way to the bank


Want to make big money? Land a top corporate job.

Want to make really big money? Be dismissed from one.

The evidence is irrefutable. J. P. Bolduc is ousted as chief executive of the W. R. Grace & Co. and gets a $20 million going-away present, $5 million more than his contract required.

Joseph E. Antonini, forced out as Kmart's chief executive, walks with a $3 million severance package, even though the company performed poorly during his tenure.

Robert J. Morgado, the former head of the Warner Music Group, will get between $50 million and $75 million for agreeing to a forced sayonara last month, according to a company executive. And Connie Chung, removed as co-anchor on the "CBS Evening News" amid lackluster ratings, is likely to get a $2 million payout.

"There's a funny dichotomy," said Alan M. Johnson, head of Johnson Associates, compensation consultants. "Companies nickel and dime everyone below the top ranks, but they throw $20 bills at the chosen few."

Why the big dollars to big shots on their way out the door?

"It is guilt, pure and simple," said Graef Crystal, a professor of organizational behavior at the Berkeley Business School. "A board can close a plant in Iowa and throw 10,000 people they don't know into the snow. But their courage deserts them when they have to face the person they are firing."

If the board can convince itself that the executive was a scapegoat, the guilt is that much greater.

Although recent accusations of sexual harassment against Mr. Bolduc have muddied the waters, most consultants say he was forced to leave because of personality conflicts with the late J. Peter Grace Jr. and his family.

"Bolduc created enormous shareholder value," Mr. Johnson said. "To the board, the extra $5 million is like a gratuity, a tip for great service."

Similarly, Michael Carpenter is said to have gotten a severance package worth close to $10 million when he resigned as head of Kidder Peabody amid an insider trading scandal. "He had turned Kidder around, but the board needed a sacrificial lamb," said one consultant who refused to be identified.

Oddly, big payouts also are a result of the shift to more vigilant corporate governance. Because boards now take their oversight duties more seriously, they are more willing to oust chief executives who make bad decisions, subject the company to scandal or otherwise outlive their usefulness.

But this vigilance can stretch the old ties of loyalty. Directors often are loath to push out a golfing buddy -- particularly if she or he invited them onto the board in the first place. Handing out huge sums of cash makes them feel better.

Not all top executives are willing to rely on directors' largess or sense of fair play, however. More and more, they want their severance terms in writing, and that, too, has bumped up the size of their parting gifts.

According to Executive Compensation Reports, a newsletter organization, 46.4 percent of America's largest corporations have written severance arrangements into their top executives' contracts.

Five years ago, only 30.5 percent had such clauses. Also, 55 percent of companies now grant their top executives golden parachutes -- guarantees of huge sums if an executive is forced to leave because of a merg- er or other change of corporate control. In 1987, only 35 percent gave that perquisite.

"Ten years ago, executives took jobs on a handshake," said Judith Fischer, who publishes the newsletter. "Today, there are three lawyers involved before an executive accepts a job."

Companies acquiesce in these contractual demands, consultants say, because while lower-level people are considered fungible, top executives are viewed as unique talents.

Of course, if there is a chance that a dismissed executive will not go quietly, companies may pay over-contract sums to buy peace.

"Companies consider it unbecoming to an extreme to have litigation over a severance," said Eric J. Wallach, head of the employment practices group at the law firm of Rosenman & Colin.

That is particularly true if the case involves publicity. With Ms. Chung publicly charging CBS with sexual discrimination, for instance, many consultants believe the network will accede to her monetary demands.

"CBS is terrified she will continue bad-mouthing them, so they will have a quiet settlement, and she will shut up," Mr. Johnson said.

Of course, in some situations boards keep their purses tightly shut. One consultant noted that John H. Gutfreund got almost nothing from Salomon when a Treasury bond-bidding scandal on his watch led to his ouster there four years ago. "Salomon believed Gutfreund bore some responsibility for what went wrong," the consultant said.

And, generally, boards may be growing less willing to promise the company store. A 1993 change in the tax law prohibits corporations from deducting compensation payments above $1 million, unless they are directly linked to performance.

And if the economy turns sour -- leading to more large layoffs -- huge severance payments to chief executives will seem as insensitive as they did in the last recession.

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