Negative Incentives

Chancellor Gordon Brown often talks about “negative incentives”, preventing people from working and keeping them on benefits. But there are curious parallels from the US at the top of the wage scale: CEOs who have been so disastrous that they are worth far more to the company if they just walk out than if they complete their terms.

Thanks to the rigorous transparency requirements of the Securities and Exchange Commission, we are able to consider the severance packages of Jill Barad, former CEO of Mattel, and Stephen Hilbert, former CEO of Conseco.

Barad’s original employment agreement was worth $21m (£14m). Her separation deal gave her five years salary and bonuses, worth $26.4m. In addition, she had the option to buy her office furniture for $1, free financial counselling services, the write-off of a $4.2m personal loan, the write-off of a $3m home loan, and $3.31m to cover the taxes owed on her home loan, bringing a total pay-off of $47m.

Hilbert received five times his annual salary and bonuses of $72m (£47.5m) on departure. In addition, he took away $2m in options. He must still repay $179m in loans and with shares worth about $61m, as a result of decline during his tenure, he is some way off. But unlike most loans, there is no time limit on repayment. He can just wait until the share price improves under one of his successors.

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