Friday, September 30, 2011

The empty symbolism of the one dollar annual salary


It's happened again.

We have another chief executive officer - this time, HP's new CEO Meg Whitman - who has accepted a one dollar annual salary.

And not a penny more - except, of course, for all of the stock options that she was granted as part of the deal.

On one hand, I can appreciate the sentiment. The CEO's job is tied to the performance of the company, and what better way to do so than to tie compensation to the stock price? The theory, of course, is that if the stock does well, the CEO gets a lot of money. If the stock doesn't do well, then - at least theoretically - the CEO has to split up that dollar so that it lasts the entire year. ("Don't buy that bubble gum! You'll blow your monthly budget!")

Of course, it never works out that way. Just ask HP's predecessor, Léo Apotheker. The guy was kicked to the curb, and the company spoke poorly of him after he left. And he got a severance package of $13 million. Now that's nothing like the $140 million that Michael Ovitz got when he left Disney, but it's a pretty good chunk of change nonetheless.

And Apotheker's severance package was, according to experts, par for the course:

Experts said Mr. Apotheker had what amounts these days to a fairly standard termination agreement for a chief executive. In the event he was terminated for “cause,” his contract, a summary of which HP filed as an exhibit to a Securities and Exchange Commission filing, provided a cash payment of twice his base pay (of $1.2 million, or $2.4 million); his earned but unpaid bonus (his “target” bonus was $2.4 million per year); any accrued but unused vacation — and “no further compensation.” That would add up to a maximum of about $4.8 million. But he wasn’t fired for cause.

(And it doesn't seem that Mark Hurd was fired for cause, either. Neither was Carly Fiorina, my prediction for the next CEO at eBay.)

Of course, in most cases when a company is looking for a CEO, the company is desperate to get one. (That certainly applies to the last three CEO searches conducted by HP.) And when you're desperate, you don't necessarily attract people by saying "By the way, if you leave, you WON'T get millions of dollars to walk out the door."

So despite today's momentary outrage, don't expect any changes in executive compensation any time soon.
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