There's a chance that Bailoutland could turn out to be a pretty gloomy place for CEOs accustomed to life on the sunny slopes of Proxyland.
Under the bailout bill, banks at which the Treasury throws capital aren’t allowed to make “golden parachute payments” if they boot out top managers - not until we taxpayers and our money are outta there, at least. Mr. Paulson, in guidelines put out last week, is valiantly trying to prevent the banks from fudging their way out of this one. (The IRS, with its related rules, is doing the same.)
The golden parachute ban technically applies only when an executive's departure is “involuntary” - what you and I would call getting fired. But in the magical place that is (or was) Proxyland, lawyers' nimble pens have transformed many a firing into something more pleasant-sounding, and more lucrative. For example, you may remember how Merrill, after announcing stunning losses, said Stan O’Neal had suddenly decided to take his $161 million and “retire.” (If only we’d had Sarah P. around back then to help with the winking.)
But Paulson's guidelines are wise to such alchemy. They explicitly pooh-pooh some of Proxyland's time-honored methods for hiding an involuntary termination, like letting an employment contract expire or having the executive resign for “good reason.” Nice try, say the guidelines, but if the facts show the guy was really fired, there’ll be no golden parachute.
How well this works will depend on whether boards tell the truth and - if they don't - whether the feds have the will (and the resources) to second-guess the pretty stories told to protect the feelings, and severance packages, of fired executives. And the guidelines are full of loopholes that might be fun to blog about. Nevertheless, the air of sour cynicism wafting through these rules feels like a refreshing breeze.
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If you like reading about this executive compensation stuff, you should check out Michael Melbinger's blog, which I've just stuck on my blogroll. We need all the help we can get.
Image source: Daylife.com
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