Golden Parachutes for Bad Executives

Updated on January 10, 2020
Rupert Taylor profile image

I've spent half a century (yikes) writing for radio and print—mostly print. I hope to be still tapping the keys as I take my last breath.

Source

Working people get fired for small transgressions, often without compensation. But when chief executives foul up and threaten the survival of their companies, they walk away with massive paycheques.

Hiring the Best

Peter Drucker wrote dozens of books on corporate management. In his view, the correct ratio of chief executive pay to that of the average worker was about 20-to-1. That’s where it stood in the mid-1960s.

But a lot has changed. Here’s the Economic Policy Institute: The CEO-to-average-worker-pay-ratio “peaked at 368-to-1 in 2000. In 2018, the ratio was 278-to-1, slightly down from 281-to-1 in 2017—but still far higher than at any point in the 1960s, 1970s, 1980s, or 1990s … In contrast, wages for the typical worker grew by just 11.9%” between 1978 and 2018.

In 2018, the average CEO of the biggest 350 companies in the United States was paid $17.2 million.

Corporate boards justify paying executives such large amounts of money as a way of attracting the best talent. Here, then, is a review of some of these highly talented people and the golden parachutes they received for messing up.

John Sculley at Apple

In May 1983, Steve Jobs lured John Sculley away from PepsiCo for the trifling salary, in today’s terms, of $1 million. Steve Jobs, the co-founder of Apple is reported to have said to Sculley “Do you want to sell sugared water for the rest of your life? Or, do you want to come with me and change the world?”

Sculley might have been a whiz at selling pop, but he knew little to nothing about digital technology. It turned out that Jobs and Sculley had a monumental personality clash that led to Steve Jobs leaving the company in 1985.

John Sculley (centre) flanked by Apple creators Steve Jobs (left) and Steve Wozniak (right).
John Sculley (centre) flanked by Apple creators Steve Jobs (left) and Steve Wozniak (right). | Source

CEO Magazine notes that John Sculley “made a number of shaky product decisions, including launching the Apple Newton and moving into the camera and CD player businesses.” He also signed a disastrous licensing arrangement with Bill Gates that allowed Microsoft to become the dominant player in the desktop computer business.

Profits nose-dived and, by June 1993, John Sculley was gone. Apple agreed to severance pay, stock options, and a commitment to buy Sculley’s mansion and his Lear jet. Ka-ching: $10 million.

Source

Fred Goodwin and the Royal Bank of Scotland

Hundreds of thousands of people took huge financial hits in the 2008 banking crisis, but Fred Goodwin, one of the people who caused the catastrophe was not one of them.

Goodwin became CEO of the bank in January 2001 and embarked on an aggressive expansion program. There were mergers and acquisitions followed by deep staffing cuts that earning Goodwin the title “Fred the Shred.”

Early success made him a man to watch. The Queen even knighted him for his services to banking. But, as with so many during the heady days at the start of the century, Sir Fred got greedy. As the first signs of the imminent banking collapse were showing in 2007, Goodwin bought the Dutch bank ABN Amro for $100 billion.

His appetite for gobbling up competitors gutted the Royal Bank of Scotland’s capital reserves. When Lehman Brothers folded in September 2008, it knocked over a lot of shaky bank dominoes, including the Royal Bank of Scotland. Sir Fred’s reckless spending left the bank nothing to fall back on; its losses for 2008 were £24.1 billion ($32 billion), the biggest corporate loss in British history.

Goodwin resigned on an agreed pension of £703,000 ($903,000) a year. The house is still paying out the pension on the 61-year-old former banker: Ka-ching.

Disgruntled investors make their feelings known about Fred Goodwin.
Disgruntled investors make their feelings known about Fred Goodwin. | Source

Roger Ailes and Fox News

By most accounts, Roger Ailes was not a nice man. The actor John Lithgow, who played Ailes in the movie Bombshell, describes him as a “villain … filled with shame.”

Broadcaster Christopher Ruddy says “Roger almost single handedly built the number one TV network for cable news in the country, and he did it within three or four years.” Perhaps you don’t get to be successful in any realm of business by being nice.

Ailes was clearly very clever at manipulating audiences. He called Fox News “Fair and Balanced,” when it was the exact opposite. But, Ailes had a much darker side than just peddling marketing deceits. He was a serial abuser of women.

In July 2016, former Fox News anchor Gretchen Carlson accused Ailes of sexual harassment. Then, the floodgates opened and 22 other women came forward with similar accusations against Ailes. He was given an ultimatum to resign or be fired; he chose to resign and receive a $40 million severance cheque. Ka-ching.

Dennis Muilenburg and Boeing

When 346 people die because a wonky product is released to the marketplace, somebody has to suffer the consequences. In the case of Boeing’s 737 Max aircraft, that somebody is Dennis Muilenburg.

A life-long employee of Boeing, Muilenburg was in charge of the company when two 737 Max planes crashed. The circumstances of the crashes were similar and it became evident that the aircraft had a serious design flaw that was forcing it into calamitous dives.

But, Muilenburg played down the safety concerns and said just a bit of software upgrading and some more pilot training were needed to solve the issue. Later, it was revealed that some Boeing engineers and pilots knew there was a problem and alerted senior managers. As is so often the case with whistle-blowers, they were ignored and told to get with the team.

After the second crash, governments around the world ordered the grounding of all 737 Max aircraft until a fix was in place. Part of the damage control at Boeing was to get rid of Muilenburg, who had become the public face of this massive corporate disaster.

In December 2019, CNN reported that “Muilenburg could be entitled to a benefit plan worth more than $30 million and, potentially, a severance payment of about $7 million. Muilenburg also has another $20 million-plus worth of vested stock and a pension package totaling more than $11 million.” Ka-ching. Ka-ching. Ka-ching.

A few of the hundreds of grounded 737 Max's.
A few of the hundreds of grounded 737 Max's. | Source

Bonus Factoids

  • In 2012, Sir Fred Goodwin became simply Mr. Goodwin. The U.K. government stripped him of his knighthood, saying “The scale and the severity of the impact of his actions as chief executive officer of RBS made this an exceptional case.”
  • According to a 2013 Texas A&M University study, CEOs can make a two to four percent increase in their companies’ performance. Of course, as we’ve seen, some of them can cause the value of their businesses to have a catastrophic decline.
  • John Stumpf (CEO) and Carrie Tolstedt (Head of Community Banking) at Wells Fargo were allowed to resign in 2016 over the fraudulent creation of more than two million customer accounts. The company’s Board of Directors clawed back $60 million dollars in payments to the two executives. As The New York Times reports “The action represented one of the first times since the 2008 financial crisis that a chief executive has been forced to give up compensation.”

Sources

  • “CEO Compensation Has Grown 940% Since 1978.”Lawrence Mishel and Julia Wolfe, Economic Policy Institute, August 14, 2019.
  • “How Much Does Luck Affect a CEO’s Performance? More Than You Think.” Will Yakowicz, Inc.,November 17, 2015.
  • “Lessons from History’s Worst CEOs.” Emma Wollacott, CEO Magazine, July 18, 2018.
  • “25 People to Blame for the Financial Crisis.” Time Magazine, undated.
  • “Roger Ailes, Founder of ‘Fox News,’ Dies At 77.” David Folkenflik, National Public Radio, May 18, 2017.
  • “Boeing’s Fired CEO Could Walk away with a $60 Million Golden Parachute.” Jackie Wattles, CNN Business, December 24, 2019.
  • “Wells Fargo to Claw Back $41 Million of Chief’s Pay Over Scandal.” Stacy Cowley, New York Times, September 27, 2016.

Source

© 2020 Rupert Taylor

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, soapboxie.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://soapboxie.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)