Power Lunch

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Power Lunch

CEO Termination Deals: Risk Management or 'Pay for Failure'?

CNBC's Bill Griffeth posed the question: Are C-level executives really worth their so-called "golden parachutes"? Mary Ann Jorgenson, corporate governance attorney and partner at Squire, Sanders & Dempsey, and Dan Pedrotty, director of the AFL-CIO's office of investment, took up the issue on "Power Lunch."

Golden Parachute$

Executive-compensation benchmarking firm Equilar released a report regarding exit packages for the top Fortune 200 CEOs in 2006: Median severance for termination was $21 million; median payout for change-in-control exits was $28.6 million.

Jorgenson said the "main reason" for rich change-in-control agreements is "risk": Companies seek to attract and keep the "very best talent" via big benefits, tha attorney noted -- and when someone "already very successful" jumps ship to another company, he or she is taking the chance that the new employer will be bought or sold. The career change is "a very difficult decision," she maintained -- and one which no executive would make without the change-in-control safety net.

But Pedrotty called Jorgenson's argument "fundamentally wrong." He pointed to current trends in executive compensation, naming Home Depot, which did not give their new CEO [Frank Blake] a golden parachute."  (Blake's predecessor, Robert Nardelli, had a $210 million severance package.)

Pedrotty maintained that the Equilar study shows "pay for failure is alive and well," as potentially, CEOs can back moves such as takeovers "that benefit them more than shareholders."