Lending Club Blog

Credit Crunch CEOs Getting Canned

spam

“When companies fail, should they give millions of dollars to their senior executives?”
– Rep. Henry Waxman.

This week two high profile CEOs have been either forced to resign, or into lesser roles within their companies (WAMU and Wachovia). They join a growing list of canned CEOs in the wake of the subprime meltdown.

So, now that many of these guys are getting canned, should we expect to see them at our local soup kitchen? Unlikely. Looking at their past compensation and severance packages, it’s a safe bet to say these guys are going to be fine.

Even now as they’ve gotten the boot, many have huge “golden parachutes” ensuring no matter how horrible they’ve performed, they will land in a pile of cash. In April, former Bearn Stearns CEO James Cayne bought a $25.8 million penthouse in NYC.

Apparently, sometimes underperformance really does pay.

1. Washington Mutual – Kerry Killinger

Status: Canned As Chairman. Still acting CEO.

2007 Total Compensation: $14,364,883
Stock Performance (trailing 12 months): -80.25%

wamu

Kerry Killinger was just recently removed as chairman of the troubled retail bank. He still remains CEO. Should WAMU pull a Countrywide or Bear Stearns, Killinger has a severance worth more than $22 million if he is terminated before a change in control.1

2. Merrill Lynch – Stanley O’Neal

Status: Canned in October 2007.

2007 Total Compensation: $28,286,332
Stock Performance (trailing 12 months): -55.1%

merrill lynch

Canned in the fall of last year, Mr. O’Neal took in a huge severance package that was built up during his tenure as Merrill Lynch CEO, valued at $161 million.2

3. Wachovia Corp. – Ken Thompson

Status: Canned in June 2008

2007 Total Compensation: $15,795,984
Stock Performance (trailing 12 months): -59.79%

wachovia

Two months ago Ken Thompson lost the chairman job at Wachovia. This week he was forced to retire from the nation’s fourth-largest bank. He will be receiving a severance of $1.45 million as well as accelerated vesting of $7.25 million in company stock.

4. Bear Stearns – James Cayne

Status: Resigned in January 2008

2006 Total Compensation: $40,004,315
Stock Performance (trailing 12 months): -93.87%

bear stearns

The day after JP Morgan raised its bid for Bear from $2 to $10, Mr. Cayne unloaded his entire holdings in the company, for a $61.3 million profit.3 While a very profitable company, Bear took huge risks in the subprime market which ultimately led to its near implosion.

What do you think?

How much should a CEO be paid? Should CEO pay be tied to stock performance? Earning? Revenue? Risk?

Photo by Mulad.
Compensation Data: AFL-CIO Case Studies
1Washington Mutual Inc. 2008 Proxy, page 56.
2“O’Neal’s $161 Million Merrill Package May Spur Senate,” Bloomberg, 11/02/07
3“Toward the Exit: Cayne Sells Big Stake in Bear,” WSJ, 03/28/08.

Thursday, June 5th, 2008 at 1:15 pm

Comments (4)

  1. Tinfoil:

    All societies fail when false leaders reach the top. Here is how
    the micro minority j**s about 2% of US population control it’s
    Education, Banking, Media and through these three key institutions
    control the host society. 1. Some brilliant people of the minority
    community becomes professors. 2. They start favoring students from
    their community, to place their people in key institutions. 3.
    Slowly take over the Banking operation and through fractional
    reserve credit they buy all media companies. 4. Enslavement of host
    society is complete, it will be very difficult for the host society
    to shake off the parasites once they lose control of key
    institutions like Education, Banking, Media. Solution is still
    possible: 1. Nationalize the Federal Reserve, remove all j**s from
    Fed. 2. Start non j**ish banks, let the j**s run their own banks
    but gentiles need their own banks as well. 3. Never allow more than
    2% j**ish professors in Universities 4. Start gentile media
    companies 5. Act today and save the world.

    June 5th, 2008 at 8:07 pm

  2. Hatim:

    They should be tied to performance difference between their stock
    price and a portfolio stock index set by the compensation
    committee. e.g. a bank’s stock index would be benchmarked vs an
    index containing a portfolio of competing banks nationally and
    globally where relevant. If the industry takes a nose dive, he will
    not get affected this way unless his bank does worse than the
    industry average set by the board’s compensation committee.

    June 6th, 2008 at 5:25 am

  3. I think a CEO, or any higher executive for that matter, should make
    no more than 20x their lowest paid employee. However, I’m a
    Libertarian and so I believe in a free market. My suggestion above
    is only a moral one and not one to be governed by anyone. If you
    don’t like how much someone is being paid then don’t by their
    products.. if enough people do this.. there won’t be anything left
    to pay such a salary.

    June 6th, 2008 at 1:17 pm

  4. Currently, CEOs are given stock options as compensation on the
    theory that they have an incentive to make those options more
    valuable. But that’s just a carrot; there’s no stick. CEOs should
    be required to buy their companies stock at market prices for their
    first year (or something of that nature) and take earnings only
    through dividends and capital gains. I don’t think this should be a
    law, just good corporate governance. The government could set up
    the tax structure to encourage this, but they sort of already do.
    The amount a CEO makes above $1 million isn’t tax deductible by a
    company, which is why most are paid in stock options. My blog has
    some more thoughts on the subject, also.

    June 7th, 2008 at 1:06 pm

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