Time to Rethink Executive Exit Packages?

There’s a clear business imperative to robust executive compensation and severance benefits, but it can collide with public outrage and turn off customers when leaders are accused of compromising positions or caught in corporate scandals. It’s also an opportunity for HR and PR departments alike to engage in damage control and revisit corporate policies. As for benefit brokers and advisers, they can help craft a strategy that anticipates and addresses these issues.

Two such examples from over the summer come to mind. The first involved sexual harassment allegations against former Fox News CEO Roger Ailes whose exit package totaled $40 million, the unpaid balance on his contract. As one of the most feared and admired figures in cable TV news, he was accused of bawdy patterns involving multiple female on-air personalities and Machiavellian plots to silence opponents.

The second involved two C-Suiters from Wells Fargo following a probe of the retail bank’s phony accounts scandal. CEO John Stumpf was grilled at a congressional hearing by Sen. Elizabeth Warren (D-Mass.), who suggested he resign or at least forego his pay.

His initial response was defiant, but after mounting pressure from lawmakers and shareholders to be held accountable for allowing high-pressure sales tactics on his watch, the bank’s board took swift action. The chief exec was forced to forfeit much of his 2016 salary, which included a bonus and $41 million in stock (coincidentally just north of Ailes’ severance).

News of his stunning concession was accompanied by an announcement that Carrie Tolstedt, who ran the division where these accounts were created, immediately left Wells Fargo ahead of a scheduled retirement at the end of this year. She also was pressured into giving up a bonus and severance, as well as forfeit all $19 million worth of her unvested stock awards and not exercise $34 million in stock options during the investigation.

Despite these eye-popping givebacks, about $43.3 million in stock Tolstedt owns outright from her career at Wells Fargo will line her nest egg, which could nearly double if she’s allowed to keep options valued today at an estimated $77 million.

On the heels of these developments comes a class action lawsuit by former employees and vilified whistleblowers who felt victimized by an unhealthy corporate culture of greed and unethical practices.

As for Ailes, who hasn’t admitted to sexual harassment or stood trial over those charges, there’s no indication that he’ll decline a generous severance from one of the most infamous golden handshakes in recent corporate history.

Anita Hill, who 25 years ago accused then-Supreme Court nominee Clarence Thomas of sexual harassment, suggested in one report that the co-founder of Fox News “injured the company in a way that would keep him from being entitled to a severance pay.”
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Whatever ends up happening next with these two high-profile scandals, the fact remains that they serve as teachable moments for those in the industry whose role involves recognizing and rewarding executives. Is it time to make a morals clause a standard part of executive exit packages across Corporate America? It’s a question some might want to ponder. However generous benefits and comp practices are at various organizations, it seems at least the public – if not the boardroom – would hope they’re tied only to a job well done.