Fascinating drama occurs when CEOs turn over. Occasionally, there is a compensation connection… as just happened. Pour yourself another cuppa… Let’s consider the options here and what their impact may be on compensation schemes.
When a CEO breaks a “non-disparagement clause” of an employment agreement involving a golden parachute, what might be the result? This should not happen, in the first place, as discussed by fellow Compensation Café contributor Dan Walter in his post a few days ago.
One generally expects a departing executive to cooperate when offered a hefty bounty to leave without protest. Dan covered the principal reasons in his article.
Additional inducements to bite your tongue when sacked include the guarantee of a positive or at least a neutral reference, as long as you “play nice" and smile falsely when you leave. Claiming that you left "to pursue other opportunities and spend more time with my family" is the accepted script for an executive exit greased by mass quantities of hush money. Buying silence has ALWAYS been the primary boardroom justification for the traditional golden parachute protocol that accompanies constructive discharge. Both sides are supposed to profit from the exchange.
If you can create a link between the departee's future and the future of the firm they have left, you ensure their silence about the skeletons in the closet. Even if they can't positively assist their successor, you can try to keep them from sabotaging the ship they left.
At least, that's always been the intent. Lock their lips with millions under fear of great financial loss if they tell the whole truth that will undercut future share value and TSR. Hold the lifetime security of their family hostage against negative disclosures about secret insider issues. But if the cost of forfeiture is acceptable, you have no leverage. If the price isn’t right, then the "bound" party may feel free to reject their part of the deal.
This is a prime instructive example of classic human motivational psychology. The consequence of non-performance was more rewarding to the individual than the payoff money. She appeared willing to forego the payoff and "bad-mouth" her employer, no matter what the financial effect.
This now becomes a CRM matter and a potential legal issue. It might be more costly to the company to hammer the outspoken ex-CEO with a payout cancellation than to let her speak and simply ignore it. Remaining silent would permit the employer to appear civil, professional, polite and unemotional. The departee would appear "obviously" angry and her "unprovoked" comments could be disparaged as merely sour grapes from a "small-minded disgruntled individual whose performance simply didn't hack it." All this is hypothetical speculation, of course.
Why initiate a punitive response when you could take the high ground of sticking to the payout and ignoring the provocations as unworthy of response, thus dampening any effect. Smiling in the face of abuse infuriates the perpetrator and denies them any platform from which they may deliver new assaults. That also would keep the deal out of the courts where more attacks could be made, publicized and dignified. Any dirty laundry exposed in court would be assured of publicity for years to come. Might be best to “kill it with silence” (http://en.wikipedia.org/wiki/Mokusatsu).
Ah, but then (as Dan observed afterwards, permitting me to quote him), there is “…the potential impact on future Say On Pay voting. If you let her keep the payment then shareholders may argue that any Golden parachute is simply a tacit agreement to pay more money, with absolutely no teeth attached. If you take the money away and really dirty laundry is aired, BOD members may see their positions filled by others in the future. Thus we find the core of the problem with the multi-millionaire CEO. Additional money loses value if you already have more than you can spend before you're dead.”
That’s one of the many problems I would love to have. How about you?
E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.
Image courtesy of pixelparadox.com
Thank you so much for this useful post! Some bosses can be too abrasive, that I can't blame employees standing up for their dignity and talking back.
Posted by: Human Resource Management System | 09/19/2011 at 05:45 AM
Thanks Jim,
Excellent article. I think that it is fun/odd/interesting that in our current media cycle the half-life of a big "scandal" appears to be a few days. The Yahoo issue is already no longer in the news even though we are talking about millions of dollars. Yahoo being quiet about it may have let the hulabaloo calm down. The question is whether shareholders will remember when they get a chance to vote.
Posted by: Dan Walter | 09/19/2011 at 10:33 AM
Questionable effect, regardless of the specific Say on Pay vote, since it don't mean nothin' more than a waggling finger. Thank YOU for first calling tradecraft attention to the instructive mini-drama, Dan.
Posted by: E. James (Jim) Brennan | 09/19/2011 at 10:38 AM