Monday, May 2, 2016

United Airlines CEO Gets $36.8 Million Severance Package After Resignation Triggered By Federal Probe

I find myself posting yet again about another bizarre CEO golden parachute package.  This time, Jeff Smisek, the former CEO of United Airlines, is set to receive $36.8 million in severance pay and other benefits following a federal corruption probe into United's relationship with the Port Authority of New York and New Jersey.  Smisek resigned as United's CEO, President, and Chairman of the Board in September 2015. 

Smisek's pay package includes a $4.9 million severance component, $1.7 million as part of United's annual incentive program, and $29.4 million in equity-based awards.  Additionally, Smisek is set to receive the following perks from United:

  • Smisek will receive lifetime flight privileges and parking benefits at United's hub airports in Houston and Chicago;
  • Smisek will continue to get life insurance coverage and he and his dependents will continue to receive health insurance coverage until he qualifies for Medicare; and
  • Smisek will get to keep his company car which he received while serving as CEO.


Ultimately, United's board could force a clawback of up to $10,1 million of Smisek's severance payment.  Upon Smisek's resignation from United, Oscar Munoz took over as CEO.  Should corporations still continue to reward questionable executive behavior with such lavish severance package awards?     

6 comments:

  1. This outrageous parachute reminds me of many heated discussions about executive pay. In light of Berne Sanders positions and his admission to some socialist sympathies, it seems common now to call anyone who thinks most corporate executives are overpaid a "scaliest". Many of us are merely true capitalists who think the "market" system for corporate pay is not working according to economic theory. Many career situations, from corporations to accounting and law firms, are based on a pyramid pay situation which doesn't line up with reality. This is not to say that some certain special gifted individuals aren't worth being paid a whole bunch more than others, but I would suggest huge compensations are more a factor of controlling ("paying off?) the salary decision-makers than actual worth of performance. The #1 statistical indicator of CEO pay is NOT profit performance but size of company. Thus many of us not in the infamous 1% would suggest not socialism but just (as in justice) capitalism. So I would like to suggest we call ourselves "fair capitalists" -- wanting the capitalist system to work as the free market should. Now, as I have been told, no one said life would be fair; but that doesn't mean we can't try to make it more fair

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  2. Megan Reynolds-CloseMay 14, 2016 at 12:43 PM

    This pat on the back for being deceitful and hurting the company you have a duty to protect is dis-heartening. While I understand the golden parachute use in a merger or acquisition to protect those that stay from being unreasonably terminated, this is not what this tool should be used for in this case. The burden falls to the shareholders, and I question the adherence to the fiduciary duty owed to those shareholders by the board and executives.

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    1. Ahh...the "Disney" package. Wouldn't we all love to be valued so much and held in such high regard that a company would seek out our services to the tune of millions of dollars, even of it becomes necessary to terminate the deal?? The fact is (as it was in In re Disney), company are in fact negotiating for these high-dollar, top figure executives, and they are doing so knowingly, intelligently and voluntarily (to recycle a criminal procedure phrase). Or are they? Is any top executive really worth that much that a company would pay tens of millions of dollars of shareholders' money, not only to hire, but to cut the loss and fire as well?

      I am not "disheartened" at all as Ms. Reynolds says above. I have no sympathy for boards that will knowingly and voluntarily (we'll pass on intelligently for now) negotiate these types of "Golden Parachute" deals without first arming themselves with more and better information and more feasible end-game solutions. The poor shareholders who rarely are able to voice their opinions...perhaps a proxy fight for better leadership would be a great start.

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  3. I do not find this golden parachute package to be bizarre or outrageous. The package was likely negotiated for upon Smisek's hiring, and in his position each of us would be trying to negotiate for similar packages. In fact, if he were a client and we did not, we would be doing him a severe disservice. What I find bizarre and outrageous is that some would advocate to limit someone's ability to contract for their own salary, benefits, ect. just because they make too much money. Interestingly enough, The severance package seems to be rather well negotiated in light of what is currently happening with the federal probe. The "clawback" provision mentioned above says that Smisek must return most of the package including: $4.875 million of the $4.9 million; the entire $1.7 million bonus; nearly all of his shares of United stock. Further, the clawback provision is triggered if Smisek is convicted of or pleads guilty or no contest to any felony or any crime of moral turpitude, or if he failed to cooperate with the company on legal proceedings or investigations.

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  4. I find this level of pay a bit offensive (but admittedly I will not think so when it's my salary). Still, were this "golden parachute" associated with an early termination or the result of a natural culmination of his time with the company, I'd be less concerned. This, however, is associated with bad faith; to that end he's breached his responsibility to the shareholders to be a good steward. CEO's should be held to the same standards that any other individual who breaches a contract would be held to. As Megan pointed out, this "safety valve" clearly rewards bad behavior, but I'd go a step further and say that in doing so it creates a plutocracy. No other individuals can break the law and be paid. The act in and of itself is perhaps less damaging then the intent behind the action and the haughty yet accurate recognition that there are no consequences applicable to a person like him in modern American Society. Injecting that ego-maniacal venom into the zeitgeist from the top of the hill has to trickle down and create equal and opposite reactions which then reverberate throughout society. Deciding who can't be touched is the same as circumscribing who can.

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  5. No, companies should not reward executives for questionable behavior. However, this is not a case of him being paid for bad behavior. Smisek is being rewarded for being an attractive enough candidate for an executive position that a company was willing to make a bad deal to attain his services.

    As an attorney, I would advise the company to not make this deal and to have protections in the contract that safeguard from these types of results. On the other side, I would fight for every penny Smisek received even if he may not deserve it. A contract is a contract.

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