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HP Spent Over $80M To Get Rid of Its CEOs
hapworth writes "Analysis published today shows that Hewlett-Packard has shelled out over $80 million to get rid of three CEOs since 2005. The first CEO to take her expensive exit, Carly Fiorina, received over $42 million, once stocks, options, and pension are factored in. Mark Hurd, after just four years, received $12.2 million to take his exit; and now, after 11 months, Leo Apotheker will walk out with a reported $25.2 million in severance. With eBay's Meg Whitman in as the new CEO at HP, industry analyst Robert McGarvey writes today that 'the HP gig could help Whitman replenish her personal coffers, depleted by the pumping of $119 million into a futile bid to become California's governor.'"
I'll ruin your company for a measly $5 million; no stock options if you don't mind since I'll probably do a pretty good job of it.
I swear to God...I swear to God! That is NOT how you treat your human!
The Board keeps choosing bad CEO's. Why do the shareholders keep re-electing them? Where are the institutional investors on this? I guess it's their company to destroy, if they really want to.
My God, it's Full of Source!
OUTSIDE_IP=$(dig +short my.ip @outsideip.net)
The one who was considered successful by all (Hurd) was the one with the least compensation (by a huge margin if you consider his years on the job vs Apotheker). It is no joke we say the worse you do as a CEO the more money they pay you!
Violence is the last refuge of the incompetent. Polar Scope Align for iOS
... should be tied with performance measurements meeting certain baselines - reduce waste (not the same as reducing cost), or increase profits by % - that are established at the time of hiring instead of being given wholesome at the exit door. Then again, I might as well wait for pigs to fly.
Why is it that even poorly-performing CEO's get incredibly huge severance packages? I can understand CEOs that actually helped raise a company getting nice parting gifts (like Lou Gerstner and Bill Gates), but shouldn't leaders that, effectively, failed to lead? get much, much less?
This problem will always be there if non eof the CEOs are held accountable for their bad decisions, some make them on purpose, as insider information makes dipping stock prices easy for another company paying a hidden fee to buy into another one. Yes it is punishable should it come to light, but hell, none of these things ever come to light except when someone happens to stumble upon something and raise a flag to the right people.
I hate to say this, but if we started keeping tabs on the actual work that CEOs did in terms of good work vs. shody work and say have it in the clause that should there be any badly managed portions of their work, they could be held accountable to pay a fee, of which could be based on the amount of the screw up.
Before I either get worked up or try defending this practice, why are they being paid this again? Badly written contracts or what?
No, I believe the contracts basically say you "won't disclose stuff to other companies, now go... go think of things that will bring the stocks up. Anything.. Just have fun! We trust you implicitly, until you screw up. Here's some money to make it worth your while."
I'm sure I'm 100% wrong on that one.
/sarcasm
The way CEO pay for publicly held companies should work is that shareholders should enter the amount on the proxy. The share-weighted median is the CEO's total compensation. (And no default value for unvoted shares.)
Also, voting rights should pass through as far as the tax break does, so mutual fund managers have to pass voting rights through to their shareholders.
"but we are talking about the one in a million type person/personality types. Just like there is little chance any kid you went to school with would ever be a NBA/NFL star or Hollywood A-lister (or even B and C) their chance at this level is equally small."
Hm... maybe that's the problem. HP (and other companies) should stop hiring one in a million, self-important sociopaths with overly inflated egos and try some normal, competent people.
"It's good to be the king."
So at this point, Hewlett-Packard is just a shell company that exists to funnel the long-term campaign contributions of conservatives into Meg Whitman's war chest by means that are not subject to contribution limits or public oversight... right?
Why would anybody invest in HP if not to directly support the new CEO's compensation package?
I still want to know how Leo swung $2 million a month for his walking papers.
Actually, it took a lot of courage and fortitude on his part. He had to talk the board down from their initial settlement offer, which was vastly greater (it's only shareholders' money, not their own). Apparently, he wanted the monetary compensation to be so small that it counted as an obvious reprimand, almost an insult, and he clearly succeeded. A mere $25million is as hard a slap in his face as this board could be expected to give...
Those who can make you believe absurdities can make you commit atrocities. - Voltaire
I won't even pretend to think I would ever be at this level, but I would love to sit in a room and watch how they work one day as a fly on the wall. Just what does set these people apart?
Newsflash: they're people like you and me, and eat and shit the exact same way we do. They even work the same way we do. The difference? They were at the right time, the right place to use their particular skills (marketing/design/direction in the case of Jobs, identification of long-term market trends in the case of Gerstner, etc). Most of them are smart - some even scary smart. But not 1:1000000 smart, and certainly not that exceedingly knowledgeable. From what I've seen, what sets CEOs apart from others is that they are very, very good at schmoozing. 1:1000000 good. Otherwise, they'd never have been in the right place at the right time.
Those who can, do. Those who can't, sue.
It may be better in terms of long term performance, but consider this approach to making money if you're on the board of a company:
1. Hire a perceived "rock star" CEO.
2. Stock goes up on the announcement.
3. Sell some of your stock right after the announcement (nothing suspicious about that, just collecting a gain)
4. If "rock star" CEO doesn't work out (as seen in some of the quarterly reports, so you aren't insider trading illegally) buy up some company stock as the price gets lower.
5. Fire bad CEO, stock goes up on the announcement.
6. Form CEO search committee, go to step 1.
This will eventually run the company into the ground, but a director could make a lot of gains on the way down. And they can continue to hold their seat on the board by timing things so that board elections happen between steps 4-6.
I am officially gone from
Normal people arent competent.
Competent people are harder to find than 1 in a million.
i thought once I was found, but it was only a dream.
There are 2 issues with what you are saying. There are pros & cons with everything –so I am just point this out:
Profits, waste, etc. are based on accounting numbers which can be gained. Want to increase short term profits – decrease the deprecation of assets. Want to increase long term profits – borrow lots of money, invest in high risk projects, etc. This is why a lot of people favor equity based (Stock options, restricted shares, etc.). The value is being assigned by somebody outside the company.
Secondly, who is setting the marks? Should the marks be easy or hard? In down markets boards rarely blame the CEOs. In good markets (a rising tide will lift all ships) then tend to credit the CEO and not dumb luck. Now, this is true for equity compensation as well.)
Severance is what permits you to grow yet another head after you misplace those who have gone before. You could always try picking up a discount head off the bargain rack, but the flighty shareholders will vote thumbs down. Or you could rent out the "captain of industry" chair for good coin to thrill seekers with Sim-City cred--except that the lawyers would spoil it. There goes your profit center. By the time your shareholders, the lawyers, and your directors+candidate/sucker all nod in agreement, it's another predictable episode.
There actually is something interesting going on here in the rumpled manifold of greed and commerce.
I think part of it is a selection bias toward winners. It's our heroism reflex run wild. If ten talented people vie for king of the hill (any career juncture from high school to grad school to middling rungs on the corporate ladder) and only one person prevails (probably as much through luck as good management), the winner walks off with the prize and a survivor halo. What price the survivor halo?
Then, like poker, you stake your halo at the next table (in the antechamber of Cloud Nine), in another round of lucky bastard takes all. What price your survivor halo now? Think of the halos as lottery tickets, where you have few ultimate winners at the end of the day. Making the first cut doesn't make your ticket worth anything at all except for prospects in the final draw. Only one person can cash out, so the halos are transacted in multiple rounds of winner-take-all.
Guys like Apotheker, who come into the job wearing the halo of halos (as expected by the flighty shareholders), aren't going to risk all that went before on a sour moment from a sour board (see Dunn, Patricia).
These people aren't necessarily more competent than their rivals, but there are only so many heroism slots available to the human psyche. They got one, their adversary didn't. We believe in success. We believe that success fuels success. Every year we award trophies in all the major sports leagues, whether the champion deserves it or not. It's the slot we hold fixed, while the champion varies. Then along come the carpers of competence, wondering why not all champions are created equal, as if competence prevails on any given Monday. Have you ever opened your eyes in a board meeting?
Shareholders want the halo of "born winner". You see this on sports forums even more clearly. Chris Drury: born winner. Look at his contract lately. Savvy halo owners don't transact on their trophy without a substantial safety net.
The only way the halo represents what it claims to represent is when having the halo grants you super powers because people believe in your halo. When exercising the power of that belief, your decisions might not resemble ordinary competence, and then the resentful competence carpers will fill you with darts. Your halo tarnishes, and you recede, diminished, into The West. You know this going in. Your severance prospects are configured accordingly.
Competence might be a better corporate performance model in long-term aggregate, but with money, the non-linearity of the cash-in/cash-out cycle drives people to manipulate time frames.
Imagine you hold HP stock and the company is positioned to earn 15% in each of the next two years. But that's not good enough. So you convince the exec. (though lush compensation) to represent earnings the first year as 20% and then you cash-out on a 20% annual return in one year, and free up your money to LRR somewhere else. Nice. Next year the company will announce 10% return and the CEO will probably get fired. So unless the midterm compensation was extremely lush, the CEO would prefer to announce 10% return the first year and 20% the second year.
This is why we get halo dramas rather than sustained competence. The aggregate return on the company often matters less to sharp interests than how it's spun. It's the same non-linearity which propels the finance community to b
This is exactly what Buffett was talking about in his 2005 letter to Berkshire Hathaway shareholders. If you don't want to read the whole thing, there is an excerpt of the relevant portion here.
In this letter, Buffett explains how a CEO can make tons of money while driving a company into stagnation or even destruction. Here we are six years later and it seems like nothing has changed.