$260 Million After Death? How Rich Executives Make Money From Beyond the Grave
Should Omnicom CEO John Wren die in office, his family will collect $41 million in posthumous benefits, including equity awards, incentives and life insurance. He’s not alone; numerous companies have special clauses embedded in their executive compensation contracts to provide massive payouts in the event of a death. Talk about pay for performance.
As if excessive executive compensation wasn't bad enough with living CEOs, some lucky ducks have some rather unique postmortem severance benefits. Under "golden coffin" arrangements, CEOs who die in harness may be entitled to lavish payouts upon death. We're not talking funerary wreaths here: Nabors Industries CEO Eugene Isenberg would have been due over $260 million upon death before his compensation was renegotiated in 2009; James Bernhard at Shaw was promised $17.4 million just for agreeing not to compete after death, and that didn’t include the rest of his compensation package; and Michael Jeffries at Abercrombie & Fitch was pledged a comparatively modest $17 million. Their family members certainly won’t be hurting for Maseratis when the bell tolls.
This compensation includes unearned pay, stock options and other benefits provided to family members in hefty financial commitments guaranteed in the event of a death in office. Cynics suggest that golden coffins help fend off hostile takeover attempts by ensuring that no acquiring company would want to take on such obligations, while proponents say they provide financial protection and security to the families of high-ranking company officers. Surely, CEOs wouldn’t want to worry that they would leave family members on the brink of bankruptcy after death; after all, they only make a paltry average of over $11 million annually.
Needless to say, such generous compensation isn’t available to regular employees who die before retirement, even when they die on the job. In 2010, BP attempted to get away with offering minimal compensation to the families of Deepwater Horizon victims, for example. Death benefits available to public employees are under attack along with other aspects of government pension plans, and many workers in the private sector cannot expect family assistance if they die while working, unless they’re working for union companies. Even then, the payouts are scant, usually barely enough to cover the costs of the funeral, let alone settle debts. As for perks like unearned wages and bonuses? Not very likely.
Golden coffins aren’t a reward for service and hard work, or we’d expect equally generous offers to loyal employees who die before retirement. In a culture where death by overwork is a chronic problem, few companies would be willing to take on death benefits for employees who die in service; the liabilities could be bankrupting. Just to the contrary: some companies take out what is known as “dead peasant” insurance on rank and file employees, collecting life insurance in the event of a death without offering any payout to the family.
Golden coffins are instead an example of the sweeteners offered to convince executives to sign on and stay on in a highly competitive culture where multiple firms can afford to woo CEOs away from rivals with generous offers. The very idea that CEOs should be offered a no-compete bonus that extends into the afterlife sounds ludicrous, but is very much a real part of the golden coffin package for some CEOs.
The Wall Street Journal provided a breakdown of some of the most extreme examples several years ago. Before changes to his compensation agreement, Brian Roberts at Comcast was entitled to a $60 million cash settlement upon death, along with $14 million in “accelerated rewards” and a $223 million life insurance policy, setting his family up with almost $300 million in benefits. His package included payouts of salary and bonuses for five years after death; evidently being six feet under doesn’t stop you from earning an annual performance bonus for your hard work.
Ivan Seidenberg at Verizon was entitled to nearly $50 million upon death before he stepped down in 2011. Nicholas Chabraja at General Dynamics, meanwhile, was offered an $8.2 million consolation prize for not being able to use the corporate jet after death. They say you can’t take it with you, but some of these power brokers are certainly trying.
Since 2006, information about golden coffins has been publicly available under new Securities and Exchange Commission rules concerning disclosure of executive compensation. Growing interest in executive compensation has accompanied public filings, especially starting in 2008, with a shifting economy that made such profligate spending appear not just inefficient, but also offensive. However, there’s been surprisingly little rebellion among shareholders on the subject of executive compensation, particularly golden coffins.
This may be because they come with nice names like “Family Income Assurance Plan” at Disney, which promises such packages to new executive officers as an added incentive to join the company. Evidently pay and bonuses in the millions simply don’t provide enough for Disney executives to set up savings accounts for their family members, or establish life insurance policies to provide coverage in the event of their deaths. It’s a hard-knock life for executives.
News about golden coffins began cropping up in the financial media in 2008, in the midst of a growing economic crisis that made executive compensation an even more contentious issue than ever before. One of the most common criticisms of ludicrously expansive compensation packages had been that they were not tied to performance, entitling CEOs to ample sums regardless of how well their companies did in a given fiscal year, and very little seems to have changed. The golden coffin is perhaps the pinnacle of absurdity when it comes to executive compensation; not only is it not tied to performance, but the executive doesn’t even need to be alive to collect it.
Families of some of the world’s wealthiest CEOs are already in a comfortable financial position, as many come from families with substantial personal wealth and have added to it during their years at the helms of big name companies. The claim that families might be left insolvent after the loss of their primary breadwinners is a bit much, given the increasing inequality in income distribution. All of that money they’re earning has to be going somewhere, since it isn’t circulating back to the rest of the population, and it’s added to upon death in service for those who don’t make it to the juicy retirement benefits also structured into executive contracts.
Those bonuses, unvested options, and other plums simply revert to families, rather than being taken off the table in the event of a death. And, of course, thanks to the structure of the tax system in the United States, much of this money comes tax-free to survivors, a parting gift from family members who already avoided their fair share of tax liabilities in life.
Even Congress has taken note of the excesses of executive compensation and the role it played in the development of the financial crisis; the Dodd-Frank Wall Street Reform and Consumer Protection Act explicitly included reforms targeted at some of the most egregious excesses of Wall Street. Among other things, shareholders now have the right to “say on pay,” refusing executive compensation they feel is unreasonable. Golden coffins are part and parcel of the compensation packages shareholders can vote on, if they exercise their right to do so.
This could pave the way to more shareholder activism to reform practices at some of the world’s largest publicly traded firms. The practice of leveraging shareholder positions to improve payout for fellow shareholders is nothing new, and it’s also been historically utilized as a tool for political and social activism, which sometimes results in strange bedfellows. Hedge funds and teacher’s unions, for instance, may team up to challenge corporate boards. Social justice organizations frustrated with the environmental and political practices of major corporations have purchased shares and subsequently used shareholder resolutions for activities like pressing McDonald’s to improve animal welfare at its source farms and facilities.
Any shareholder can file a resolution, for example, an adjustment to executive compensation, as long as that shareholder has held $2,000 in stock for a year or more. Shareholders tend to focus on their own interests, and those with the most to lose may be unable to hold the required amount of stock for the necessary period, let alone read through the extremely long documentation companies use to conceal executive compensation while ostensibly meeting disclosure obligations. Many more people cannot afford to buy stock at all, let alone purchase enough to participate in shareholder votes.
Intervention though pooled resources may be the most effective way to address the excesses of executive compensation agreements. Bringing executive pay into more reasonable realms should, and does, interest a number of social welfare organizations, particularly unions, which are already active in the executive compensation reform movement. The golden coffin, as a particularly horrific example of corporate inefficiency and greed, ought to be a soft target for angry shareholders and activists alike.
With one in six Americans now officially meeting the poverty guideline, and actual poverty probably occurring at a much higher rate, executive compensation should be a much bigger topic; sadly, for some of the most cutting assessments, you’ll have to look to the pages of financial publications. Many progressives are surprised to learn that activism within the financial industry is sometimes in line with their own values. Shareholders who do smack down unreasonable executive compensation packages have profits, not social responsibility, in mind, but the end product is the same. Uniting across the divide may result in real change in the financial industry.
There’s no justifiable reason to offer such lavish death benefits to CEOs, and there are a great number of reasons to start shredding the golden coffin along with other unreasonably high benefits offered as part of routine compensation packages for CEOs.