Most employees who leave a company are typically offered modest severance — in some cases a corporate pension, and perhaps a retirement party hosted by co-workers. For many chief executives of corporations, the rewards are far, far richer.
Executives who choose to retire — or are forced to retire — often receive millions when they leave. And despite years of public outcry against such deals, multimillion-dollar severance packages are still common.
In 2012, the biggest package went to James J. Mulva, who stepped down as CEO of ConocoPhillips after 10 years, according to an analysis by Equilar of the 10 largest exit packages. His total: about $156 million. As with all CEOs on the list, his exit sum is on top of salary, bonus, and other compensation received while working for the company.
“We calculated severance pay as the total of any amounts given in connection with end of service as CEO,” said Aaron Boyd, director of governance research at Equilar.
In Mr. Mulva’s case, much of the payout came from the market value of stock gains he received. But he also received payouts from a cash severance, a bonus, and additional retirement distributions.
ConocoPhillips said the pay packages were fully disclosed to shareholders and they were “the same pension and benefits programs as described in the proxy statement as any other retiring executive.”
“The vast majority of Mr. Mulva’s compensation that he earned during his long and successful career as an executive remained in the form of company stock at his time of retirement,” Aftab Ahmed, a spokesman for ConocoPhillips, said in an email.
Among Equilar’s top 10, four were former chief executives of large oil and gas companies, including Sunoco and El Paso Corp. “Typically you are seeing these big energy companies that tend to have these big payouts upon retirement,” Mr. Boyd said.
In some cases, retiring chief executives will continue to receive millions years after their retirement. In addition to his exit package of $46 million in 2012, Edward D. Breen, formerly chief of the conglomerate Tyco International, received deferred shares, valued at $55.8 million, in 2013. Mr. Breen, who remains chairman, also will receive $30 million more as a lump-sum pension payment in 2016 as part of his employment agreement, Equilar said.
Brett Ludwig, a Tyco spokesman, said the company’s success “in large part results from key strategic decisions made by Mr. Breen and the Tyco board to create five new publicly held companies, each of which is a leader in its respective field,” adding that Mr. Breen’s pay “reflects the increase in value of Tyco’s shares.”
Other times, huge payouts go to executives as a result of takeovers. Douglas L. Foshee received millions after El Paso, the energy company he led, was taken over by Kinder Morgan.
Extreme exit packages for chief executives became more common during the hostile-takeover era of the 1980s, when the golden parachute proliferated. Boards realized that without the promise of compensation, executives would be unwilling to negotiate deals to sell their companies if an outside takeover would force them into the unemployment line. Provisions were written into employment agreements that provided everything from lump-sum payments equivalent to several years’ worth of salary to extended health insurance benefits.
Shareholders are starting to push back against packages that may seem excessive. Proxy advisory firms have been suggesting that shareholders reject those that seem too generous, but such votes are generally nonbinding.
Laws like the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010 intended to try to claw back pay from executives when it was undeserved. But a 2011 study by Jesse M. Fried, a law professor at Harvard, and Nitzan Shilon, then a law student there, found that effective clawback policies were lacking at most S&P 500 companies.
“If you actually read what these policies say, they are not very robust,” Mr. Fried said. “They all stem from the same basic problem: The directors are not paying with their own money.”
Some companies have renegotiated their goodbye packages with departing executives. Vikram S. Pandit, the former chief of Citigroup, who is not on the top 10 list, agreed to forfeit a $26.6 million “retention” package from 2011 after he was forced out in October.
But the board awarded him $6.7 million as a 2012 bonus, based on the performance of the company that year.