Want to sign up for the Counterparties email? Click here.
In January, fifteen months after he joined Yahoo, chief operating officer Henrique de Castro was fired. SEC filings show that the company paid him $58 million to walk out the door, or around $130,000 per day of service, weekends included.
In a move unlikely to mollify critics, Yahoo’s filing showed that had the company’s stock not risen since de Castro joined the company, he would have exited with a mere $17 million. Bloomberg Businessweek’s Joshua Brustein says that de Castro “got fired at the perfect time”. The company’s shares rose more than two and a half times while he was there. All of that rise is attributable to the rise in the value of Yahoo’s stake in Alibaba.
Golden parachutes offend even Vladimir Putin’s corporate governance sensibilities. The good news is that, despite de Castro’s payout and former Time Warner Cable CEO Robert Marcus’ $80 million parachute, severance packages are on the decline, at least by one measure. Fortune’s Claire Zillman reports that a Thomson Reuters Journal of Compensation and Benefits study found that from 2007 to 2011, the number of randomly selected S&P 500 companies that paid three times salary in severance dropped from 58% to 38%. The number of companies paying two times salary as severance rose from 9% to 20% over the same time period.
The Washington Post’s Jena McGregor reports that: “the professional services firm Alvarez & Marsal found that among the largest 200 US public companies, the value of golden parachute benefits have remained basically flat, going from $30.2 million in 2011 to $29.9 million in 2013.”
Summarizing a study he co-authored, Harvard Law’s Lucian Bebchuk writes that companies where executives had severance packages were more likely to receive acquisitions offers and be acquired. Matt Levine breaks out the data: golden parachutes “increase a company’s 1-year chance of being acquired from ~4% to ~5.3%… increase shareholders’ expected gains from being acquired… They do not, however, increase shareholders’ expected wealth generally. Parachute-having stocks underperform non-parachute stocks by ~4.35% a year”.
Looking at the same study, James Kwak thinks there’s some adverse selection at work:
Companies are more likely to grant golden parachutes to their CEOs if they have: (a) CEOs who care more about maximizing their personal wealth than about their companies; (b) boards who are more concerned about doing favors for the CEO than about doing what’s right for the company; or (c) both. Those are not the kinds of companies you want to be investing in.
– Ben Walsh
On to today’s links: