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The culprits seem to be deregulation, irresponsibility and greed, from the homeowners who used refinancing to live beyond their means to corporate executives who oversaw the financing of risky mortgages in pursuit of returns. Homeowners who overextended themselves may face financial ruin. On the other hand, the corporate executives who led their firms to financial disaster lose their jobs, but they walk away with severance packages of $10 million, $20 million and up. Kerry Killinger, in charge of our own Washington Mutual, walked away with $23 million while hundreds (if not thousands) of employees faced unemployment with the sale of WaMu to JPMorgan. More recently in the news was the demise of the Hostess bakeries – no more Twinkies! But Hostess executives made millions while workers were asked to take pay cuts.
What’s you view on the multi-million dollar severance packages extended to top-level CEO’s who lead their firms to disaster? Should executives walk away empty-handed if their firms fail? Should they be penalized? Or is a hefty severance package a requirement for attracting top-level talent?
Expert Answer
I am against the multi-million dollar severance packages extended to top-level CEO’s who lead their firms to disaster. This is because this is akin to rewarding C.E.O’s who fail. In the aftermath of 2008 financial crisis several CEO’s of many Wall Street companies walked away with large severance packages (including bonus as well as compensation) even after leading their companies into insolvency and putting the world economy in turmoil.
Ethically and morally top executives should walk away empty handed only if the firms fail due to their mistakes. In several instances firms fail when situations and circumstances are beyond the control of CEOs and executives. In such cases the executives cannot be blamed nor penalized. But when CEOs and executives steer the company to failure due to implementation of wrong strategy or due to leadership failure then they should stand up to their mistake and walk away empty handed.
Hefty severance package has become a requirement for attracting top-level talent in today’s corporate world. But this should change and the severance package of the CEOs should be directly linked to their performance and how they drive the performance of their companies.
