No Wonder C.E.O.'s Love Those Mergers
By GRETCHEN MORGENSON

Published: July 18, 2004

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And, my, how the list of goodies can go on. First comes the executives' severance pay, almost always nearly three times salary and bonus. Accelerated vesting of stock options and stock awards quickly follows; sometimes the options are granted with their full terms remaining - up to 10 years - giving them tremendous value.

Then there are the three additional years of pension credits that get tacked on to an executive's pay, as well as the 401(k) match, years of health care benefits and the cash value of perquisites at the time of termination - such as use of the corporate jet, country-club memberships, allowances for financial planning advice, office space and secretarial services. All in one delightfully fat lump sum.

AND don't forget that executives' pensions are often based on the unusually high severance pay, which ratchets the numbers way up.

Of course, one downside to these enormous payments is that they generate stunning tax bills for executives. Good thing their contracts almost always require the companies to pay. And how!

The so-called excise tax gross-up provisions can be so colossal that, according to one pay expert, a major merger was scuttled because the cost to cover executives' tax bills exceeded $100 million.

The numbers become really crazy when, as is often the case, the exit agreements of both companies' executives become effective in a merger.

.........it is not uncommon for payouts to management to reach 8 percent of a merger's total cost.
        
Shareholders have no way to know about all this in advance because it is hidden from view. 

Even absent a merger, a company's contractual obligations to its executives are huge. It is an outrage that these obligations - including deferred compensation and supplemental retirement plans - and their amounts, are not disclosed annually, in plain and comprehensible terms.