Many Top-Level Executives Lack Employment Contracts
By Joann S. Lublin, CareerJournal.com
Jeffrey W. Greenberg may have to say goodbye to hopes of a truly golden goodbye.
After quitting under pressure as chairman and chief executive officer of Marsh & McLennan Cos., Mr. Greenberg isn't likely to enjoy the lucrative send-off typically bestowed upon a deposed corporate leader.
The reason: He lacks an employment contract, which weakens his leverage in severance talks.
Marsh, the world's biggest insurance-brokerage firm, sought the CEO's resignation to resolve a crisis that began with bid-rigging and civil fraud charges brought by New York Attorney General Eliot Spitzer.
Mr. Spitzer had indicated he wouldn't negotiate a settlement as long as Mr. Greenberg was at the helm, and shareholders intensified the pressure for him to step down.
Marsh officials began hammering out Mr. Greenberg's exit package. Richard Beattie, Mr. Greenberg's attorney, has declined to comment on the negotiations. Marsh didn't return calls seeking comment.
Mr. Greenberg, 53 years old, also didn't work for Marsh long enough to qualify for its usual management severance plan, which requires 10 years of service. He joined the company in 1995. "He's playing without a formal severance net," says Brian Foley, an executive-pay consultant in White Plains, N.Y. "You're very much at risk of getting nothing."
A similar drama soon could play out in other boardrooms. Amid intensified outcry over super-size exit packages mandated by employment contracts, a rising number of big businesses shun them for their highest executives.
About 40% of the companies in the Standard & Poor's 500-stock index are led by executives without written accords, up from 30% five years ago, estimates Paul Hodgson, senior research associate at Corporate Library, a Portland, Maine, research group that tracks executive compensation.
Marsh and many other companies long have shunned employment contracts for top executives, even when they recruit outside talent. The widening trend at the CEO level "is the result of the attention on pay for failure," says Mark M. Reilly, a partner at a Chicago consulting boutique called 3C, Compensation Consulting Consortium, alluding to huge severance packages for ousted executives of troubled companies.
Sensitive to criticism, two chief executives recently took the highly unusual step of ending their employment contracts. James J. Mulva, chairman, president and CEO of ConocoPhillips, asked fellow directors to terminate his 2001 agreement, effective Oct. 1. In a Sept. 22 letter to the board, disclosed in a regulatory filing, Mr. Mulva said the cancellation was "in accordance with my views of good corporate governance."
Mr. Mulva "feels his performance as CEO should be the basis for his retention and level of compensation," says Sam Falcona, a spokesman for the big energy concern in Houston. Still, the regulatory filing described an executive severance plan that will provide as much as twice an executive officer's salary and bonus plus continued benefits for an individual terminated without cause. Bank of America Corp. Chairman and Chief Executive Ken Lewis last March asked the company to end an employment contract that would have expired Sept. 30. Directors of the big bank, based in Charlotte, N.C., agreed.
The three-year agreement required Bank of America to pay Mr. Lewis a salary of at least $1.5 million a year and provide other financial benefits. "He felt [canceling the contract] was the right thing to do from a pay-for-performance standpoint," says Eloise Hale, a spokeswoman.
Mr. Lewis became president and CEO in April, when Bank of America completed its takeover of FleetBoston Financial Corp. Two top Fleet executives who stayed with the combined enterprise kept their employment accords. Mr. Lewis won't impose his personal preference on colleagues, Ms. Hale says.
Bank of America is no stranger to controversy over CEO contracts, however. One month after BankAmerica merged with NationsBank Corp. in 1998 to form Bank of America, former BankAmerica Chairman and Chief Executive David Coulter left the new company with a departure package exceeding $50 million. He was covered under a contract that resulted from the merger. The hefty payout rankled some big shareholders.
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