Tuesday, August 10, 2010

What Kind of Severance Package Do You Have?

Normally I get paid to provide answers and counsel, but I have to admit, in all my 50 years of communication work, I still don’t have a good answer to why a company will fire a low level employee for stealing paper clips but give the CEO $28-million in cash and stock for filing “inaccurate” expense reports – particularly when he’s a multi-millionaire -- which raises another question, why does he need an expense account for taking anyone to lunch or dinner?

As MSNBC contributor Eve Tahmincioglu observed, “ . . . senior executives like (HP CEO Mark) Hurd play be a different set of rules, often hammered out years earlier by expensive lawyers.”

Now, here’s where my experience does come into play.

Companies of all sizes will pay big bucks and make concessions to hire someone they believe will make their company better and more successful. That is defensible.

However, what is not defensible, is giving away the store to that same leader, later, to the embarrassment of the rest of management, employees, stockholders and other key stakeholders.

Within hours after H-P confirmed CEO Hurd was leaving, Hewlett-Packard stock fell 8-percent in heavy trading.

That’s nothing compared to days of publicity linking Hurd to a former B-movie actress and “hostess” his company had hired to meet and greet guests to company hospitality rooms. It also resurrected stories about how Hurd had “revived” H-P by buying competitors and slashing payroll.

As Drucker Institute Executive Director Rick Wartzman concluded, “. . . there’s something wrong with laying people off and walking away with a princely sum like that.”

If you’ve heard me speak or attended any of our training, you know that our research shows two-thirds of all crises are preventable, and management denial is one of the contributing factors to corporate crises. Companies approve these outlandish severance deals without ever considering that this rising corporate star could turn out to be a “falling star” some day.

I didn’t stay in a Holiday Inn last night, so I’m not qualified to give legal advice, today, but I’ve worked with lawyers – many good ones – for years and I suspect you could create a single sentence, or at least a page of solid reasons why a company would not have to pay any severance compensation, let alone an outlandish pay package in certain circumstances.

Hurd and H-P are not alone, and in almost every case, the offending company suffered terribly negative publicity as a result.

Robert Nardelli was forced out at Home Depot and left with a package worth $210-million. Merrill Lynch’s bottom line was headed for the toilet when Stan O’Neal was ousted with a $160-million cash, stock, options and retirement package.

And poor BP CEO Tony Hayward will probably end up on food stamps. He only received about $1.6-million in severance pay, plus a pension worth an estimated $16.8-million. But wait, BP gave him another high paying job, with another salary, on top of all that. Forget the food stamps.

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