Rationalising Golden Parachutes

Golden Parachutes for exiting executives is a hot topic, in light of payouts to Lehman Brothers exec and others of banks being funded by bailouts in both the US and UK.

In my last post, I mentioned Watchell, Lipton, Rosen and Katz, the top New York law firm that has never billed by the hour, simply setting their fee.

 

For a further analysis of what took WLR&K to the top of the tree, have a look at Bruce McEwen's (Adam Smith) review of a book about the firm by one of their former partners.  The post was written in 2004, and is interesting in today's economic times. WLRK were involved in the development in the 1970s of "Golden Parachutes".  McEwen details the rationale and justification for the large payouts to executives who did not stay on after a takeover.  

"For many [in senior management] the jobs had taken years of effort to achieve....  The knowledge acquired by many of these executives was largely limited to the industry in which their company was involved.  There would be few opportunities for them elsewhere.  A senior manager's job also carried with it a position in the community and often defined social standing.  Much of that would be lost."

Certainly, in the present economic climate, there will be few opportunities elsewhere, but I'm not sure that most would accept this reasoning.  Nor does it sit with the value billing position adopted by WLR&K itself in that there is not the connection between payout and value delivered.

 

For an interesting detailing of who got what in their golden parachute, have a look at the Mint blog.  Perhaps a highlight is Alan Fishman who reportedly left Washington Mutual after being at the helm for only 17 days, and pocketed $19 million in severance pay and signing bonuses. 

 

Still not at $20 million for 2 weeks, but close - and better when you consider going to only one individual!