Having “the Midas touch” conveys a profitable outcome for just about any business scheme. Many chief executive officers most definitely have that magical touch — but it means they enrich themselves, not the shareholders of the companies they’ve run. According to recent data, lucrative golden parachutes — one of the most galling ways chief executives end up winning no matter what — are alive and well at many major companies.
Many such packages escape investor awareness. For example, have you heard of John Hammergren? He flies under the radar although his pay is over the top. And if he blows that popsicle stand he leads, the cost to shareholders is stunning.
Of course, Hammergren isn’t the only one exemplifying departures that are more sweet than bitter for those on the way out. Bloomberg has highlighted corporate leaders who won’t just make out like bandits if they leave — these individuals could receive nearly a quarter of a billion dollars if they vacate their posts.
Parting is such sweet sorrow
McKesson Corporation (NYSE:MCK)‘s CEO and Chairman John Hammergren is poised for one heck of a payout upon retirement. Bloomberg’s data puts his potential retirement payout at $303.4 million.
Hammergren’s good fortune isn’t limited to the prospect of a retirement windfall. According to a recent update from corporate governance firm GMI Ratings, every element of his pay enjoyed boosts in 2012. Did he deserve it? Well, when you take into consideration the company’s controversial and costly moments — fines for unsafe drug packaging, legal settlements regarding price fixing, and damages connected to an anesthetic product — well, there’s good reason to question the possibility of golden goodbyes.
GMI Ratings gives McKesson Corporation (NYSE:MCK) an F due to these aspects and more. Meanwhile, unlike the shareholder vote regarding JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon’s dual CEO and chairman roles, last year McKesson Corporation (NYSE:MCK) shareholders gave Hammergren a failing grade on retaining that much power. A narrow majority of shareholders — 52% — voted in favor of separating the roles last year, and that translates into significant disapproval among owners.
The long (lucrative) goodbye
Hammergren may lead McKesson Corporation (NYSE:MCK) in relative obscurity, but his pay over the years has been problematic for those paying attention. In 2011, he was among a handful of CEOs whose pay got called out for defying the laws of gravity — not to mention gravitas.
More recently, a cavalcade of companies doled out rich golden parachutes in 2012. ConocoPhillips (NYSE:COP)‘s James Mulva retired with $156 million, making him the top-paid recipient according to Equilar’s data.
Other outrageously planned retirement packages are coming to light. CBS Corporation (NYSE:CBS) CEO Les Moonves is currently set to receive $251.4 million if he hits the road. Discovery Communications Inc. (NASDAQ:DISCA)’s CEO David Zaslav could receive $224.7 million upon his departure.
Investors too often forget the meaning behind these after-the-fact rewards: Boards of directors are throwing millions of dollars of shareholder money at people who had made millions during their actual tenures anyway. There’s also simple economic psychology involved that corporate leaders would never apply to regular workers: Why work hard or even effectively if you’re guaranteed a gigantic payout if you leave or even get fired?
Jumping without a chute
Every once in a while, a chief executive will fly without a golden parachute or special payout, but it’s so rare it’s noteworthy.
Zynga Inc (NASDAQ:ZNGA) CEO and founder Mark Pincus’ demotion to chief product officer was one of this week’s biggest news headlines. Given the way most corporate policies are designed, such a move could have included a handsome reward.
It turns out he’s taking a title drop without a chute or special perk, but we don’t have to weep for his financial stability. Despite his token $1 salary, Pincus is not hurting for money to begin with; although his net worth was $2 billion several years ago and has dropped to $780 million, that’s still not chump change.
Meanwhile, given his 7.5% stake in Zynga Inc (NASDAQ:ZNGA), his financial interests are oddly aligned with Zynga Inc (NASDAQ:ZNGA) shareholders’ (although his whopping 61% voting control is not). Still, it’s in everyone’s best interest if newly appointed CEO Don Mattrick can get that company’s prospects back in the game.
In January, Rio Tinto plc (ADR) (NYSE:RIO) CEO Tom Albanese walked without a payout. That’s good news for the company’s shareholders, because U.K.-based Rio Tinto plc (ADR) (NYSE:RIO) had to write down $14 billion previous to his departure. Glance at a five-year chart and you’ll see Rio Tinto has been on a downward trajectory for years. Unfortunate acquisitions marked his tenure and sullied his reputation.
Albanese’s lack of cushion makes perfect common sense, but unfortunately, such situations remain the exception rather than the rule.
Thanks for nothing
Maybe when we think about human nature, it’s not so shocking that some individuals would have no problem taking millions for leaving a job. What might be more shocking is that investors large and small have been accepting the policy as set in stone and therefore somehow even rational.
Gigantic golden parachutes for individuals who are heading out the door are ridiculous and even economically unsound. Why aren’t the millions upon millions in compensation most CEOs take during their actual tenure reward enough?
Check back at Fool.com for more of Alyce Lomax’s columns on environmental, social, and governance issues.
The article CEOs With the Midas Touch originally appeared on Fool.com.
Alyce Lomax has no position in any stocks mentioned. The Motley Fool recommends McKesson. The Motley Fool owns shares of JPMorgan Chase.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
