Tuesday, October 17, 2006

Halcyon Days

I’ve grown fond of Proxyland - its bonuses and options, PR and perks. So I worry: Will shareholder activists and other reformers overrun its hills and dales the way Saruman, the evil wizard, trampled The Shire's green meadows? Might we soon be forced to live in a place where directors are elected by majority vote, shareholders can nominate board candidates and compensation committees know how much they’re paying?

Yes, there’s a remote but sobering possibility that the golden days of Proxyland are drawing to a close.

If that happens, the deal between Sovereign Bancorp, Inc. (SOV) and its departing CEO/President, Jay Sidhu, is the kind of thing I’ll be nostalgic for.

According to the 8-K filed Friday evening, the board's threat to fire Sidhu, which forced the poor fellow to resign, was "without cause." Don't know about that one; it seems there was plenty of cause to fire him, which is why - whatever they're calling it - he got fired. It is true, however, that the firing was "without Cause." The company’s use of the lower-case version is cheating, since cause and Cause are the same thing the way Paris and Paris Hilton are the same thing.

In bigtime employment contracts, you lose your severance only if you’re canned for Cause, a definition you negotiate for maximum silliness so this never happens. Sidhu’s contract was typical, as I explained last week.

The forces of Cause vanquished, Sidhu marched straight to the lush Valley of Insanely Huge Severance, encountering no resistance. There he harvested about 44 million bucks – 10.5 million under his employment contract, 22.5 in a lump-sum retirement plan payout, 9 in equity, roughly 1.5 in consulting fees over the next 3 years, life insurance, disability and medical coverage for 5 years and – my favorite - an extra million (a "one-time special payment") that seems to have been thrown in because...well, just because.

On top of all this he'll collect a hunk of deferred compensation, but the 8-K leaves that number to our imagination.

It’s raining in New York, but in Proxyland - as always - the sun is out and the birds are chirping. If hobbits lived here, they'd be dancing. Enjoy it while it lasts.