Is It Time to say Goodbye to Golden Parachutes?

Most of you probably hadn’t heard of Tony Hayward until his company, BP (formerly known as British Petroleum), hit the news earlier this spring with a catastrophic oil leak in the Gulf of Mexico that has yet to be completely contained. So you might find it curious that there is a discussion going on about whether or not Hayward would receive a golden parachute if he leaves (or is let go from) the petroleum giant.

Compensation analysts seem to suggest he won’t (or it will be severely reduced), but that doesn’t mean he’s going to be living on the streets. He is also due a $16 million pension in seven years as well.

This public speculation about a golden parachute before Hayward is even gone is nearly unprecedented outside of hardcore compensation circles and highlights the increased scrutiny being placed on them. With rising unemployment, continued economic instability, and a dearth of unjustifiable parachutes in the banking and finance industry, are we seeing the beginning of the end of golden parachutes?

A tepid beginning

The first known offer of a golden parachute was nearly 50 years ago when Charles Tillinghast, Jr. took over TWA. Since creditors were trying to gain control of the airline from Howard Hughes, they offered Tillinghast a contract that included a payout if he were fired because of the legal change.

That never happened as he moved on voluntarily, but it set in motion the concept and it has steadily increased in use since then. Some saw it as simply another compensation vessel for executives (one that doesn’t hit the books until he or she is out the door) but boards of directors used it to try to retain executives, especially in industries where mergers and acquisitions were frequent. This use continued to expand beyond that though and into industries typically less impacted by M&A activity.

Public outcry

Although some of the more outrageous figures were featured in news reports, it soon became quickly forgotten. That all changed in 2007 with the mortgage-backed security crisis. As executive by executive fell by the wayside with more golden parachutes being given out (even for the worst performing companies), the watershed moment came when the government had a series of bailouts and stimulus payments sent to these institutions.

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I couldn’t go to a family function as a HR person without talking about a Citibank or Countrywide executive getting a bonus and exit money while running their companies into the ground.

Will something be done?

Something will be done about golden parachutes. I’m not sure if it will be that substantial (I’m guessing not). I don’t know if the government still has the gumption to do it either, but I ‘m guessing that shareholders, boards, analysts, and public outcry will all continue to influence decisions in relation to this type of compensation.

What do you think? Will golden parachutes be a thing of the past? Should they be a thing of the past?

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