Case Circuit Board Fabricators Inc

NoneThe topic I choose to research relates to the impact that financial markets have on corporate treatment of pension fund liabilities. More specifically, it relates to how various corporations compensate the CEO's that they fire. A recent report published by Mr. Paul Hodgson, of GMI ESG research & ratings report titled " Twenty-One U.S. CEOs with Golden Parachutes of More Than $100 Million" revealed how during these tough economic times and government bail-out, how the rich is getting richer at the tax payers expense.

The key findings that this report revealed cited 21 CEOs received "walk away" packages in excess of $100 million dollars, since early 2000; Eight of the 21 CEOs worked in the financial and healthcare sectors. Some of the packages included actual and potential stock options, full valued stock options, salary and bonus continuations, executive pension funds. The 21 CEOs walked away with a combined total of almost $4 billion dollars. The tenure of these CEOs ranged between 9months to 29 years with their perspective companies. The sad commentary to this is that three of the 21 CEOs are still employed by their payout company.

The principle of the golden parachute was a sound principle as noted by Mr. Hodgson. However, the principle of incentivizing an executive into retirement is another sound principle as well. Golden parachutes based on my research was designed to protect executives, primarily CEOs, from financial harm when they made decisions that may be in the best interest of shareholders but that might lead to them losing their jobs. Additionally, incentivizing executives into retirement, by having stock compensation continue to vest during retirement, is also in the best interest of shareholders because it ensured that the decisions made by the CEOs were in the long term interest of the company despite the nearness of their retirement age.

According to Mr. Hodgson, what went wrong was that the principles were applied too widely. "They were applied not just to cash compensation, but equity compensation, perquisites, benefits, pensions, and virtually all other forms of pay. In principle, to protect someone from financial harm if they lose their job due to a merger, that executive needs a single year's salary and bonus." Moreover, he added "CEOs should not need three or even two years' salary and bonus, plus immediate vesting of all equity and pensions, plus benefit and perquisite continuation, as was paid to most of the CEOs in this report. A CEO who is retiring should not need a severance package as well as a retirement package, such as was paid out to John Kanas by North Fork."

In conclusion, what I've read in just two short articles and various courses of study in my MBA program, large equity grants and pensions are the primary vehicles behind these extraordinary severance payments. Also responsible was deferred compensation which allowed these 21CEOs to put aside large compensation awards that earned several percentage point above interest above the current market rate. However, even if these awards were based on cash payouts, they would seem excessive for the purpose for which they were designed.