Claws out for fat cat payoffs in hard times

Wednesday 06 August 2008

The global economy may be sinking, but that doesn't appear to have hampered the fortunes of top executives. Many of the world's fat cats appear to be lapping up lucrative parachute payments, even when companies are posting appalling results.

 

It's a nice start to a job in anyone's book: a guaranteed 40 million dollars for five months' work, even if it goes badly.

 

That's the golden parachute reportedly handed to Merrill Lynch's new head of sales, Thomas Montag, for joining the US bank.

 

Just to put that into perspective: by the time you've reached this point in the sentence Mr Montag would already have pocketed several dollars. In another minute he would be around 50 dollars better off - that's based on him working around eight hours a day over the next five months.

 

Let's not forget this is the firm that just days ago was writing down billions of dollars and forced into issuing new shares to climb out of the financial quagmire.

 

Of course, it's unfair to single out Thomas Montag. There are scores of other examples of corporate failure, at the very top, seemingly rewarded with dire results.

 

Patricia Russo and Serge Tchuruk, the outgoing chief executive and chairman, respectively, of Franco-American phone maker Alcatel-Lucent have both provoked an angry backlash.

 

The merged company they created has failed to make a profit, is in the throes of getting rid of more than 16 thousand staff and last week posted its sixth straight quarterly loss of 1.7 billion dollars.

 

Just to rub salt in the wound, Russo is reportedly leaving with a six million euro severance package. Tchuruk leaves with eight million euros compensation for a slump in the firm's earnings, plus another five million after he passed the chief executive's baton to Russo.

 

Is it fair to blame the heads for such lucrative payments? Many are negotiated irrespective of results or performance.

 

But you can understand why shareholders rage. It's their money boards of directors are spending on the hiring and firing of the top talent.

 

Still, shareholders can bite back. Owen Hegarty, the outgoing boss of mining firm Oxiana, was on course to leave with a 10 million Australian dollar severance. But the company withdrew it in the face of an anticipated shareholder revolt at the end of last mnoth.

 

Back in Europe, the sands are also shifting.The Dutch government wants to impose a 30 per cent tax on companies who dish out lavish bonuses or severance packages.

 

French President Nicolas Sarkozy is equally keen. As holder of the EU's rotating presidency he wants finance ministers to consider drawing up a directive curbing exorbitant golden handshakes.

 

He's likely to have a battle on his hands, at least on the home front. A survey carried out by Le Monde earlier this year found that a quarter of France's top-listed companies planned to shell out an estimated 50 million Euros in golden parachutes during 2008.