CEO pay-offs are actually getting smaller. Symantec CEO Steve Bennett got $14 million for being fired, but don’t let that fool you.
Believe it or not, CEO golden parachutes are shrinking
Severance packages are typically made up of a multiple of the CEO’s salary (including bonus), plus equity in the company. In 2007, 53% of CEOs at 100 randomly selected S&P 500 companies had severance packages that paid them three times their salary, according to the July-August 2013 edition of the Thomson Reuters Journal of Compensation and Benefits. In 2011, that figure dropped to 38%, as companies seemed to revert to a lower 2x multiple, the journal says. Nine percent of companies paid their CEOs twice their annual salary in severance in 2007; 20% of companies followed that formula in 2011.
Diminishing CEO payouts is due in part to the pressure shareholders have put on the use of companies’ tax gross-ups. During the 1980s leveraged buyout craze, Congress imposed extra taxes on CEOs whose severance packages included a salary multiplier of more than 2.99, says Mark Borges, principal at Compensia, a management consultant firm that specializes in executive compensation. So prior to the recession, when companies handed exiting CEOs at least three times their salary in severance, they would foot the execs’ tax bills. But shareholder advisory groups such as ISS and Glass-Lewis have frowned upon tax gross-ups of late — so much so that the arrangements have started to become obsolete as companies have lowered CEOs’ severance salary multiplier well below the 2.99 threshold.