Despite all the ballyhoo about linking pay to performance, compensation experts say that the reality is that for companies to lure the talent they want, they must offer generous severance packages that minimize risk for the person they want. If you want to go out and hire a strong CEO for your company, you are not finding this person on the unemployment line. To get that person to leave a stable position and come to a new position, it is fair, reasonable and competitive to provide assurances that if things don't work out, he just won't be put out the door. Parting ways Others point to the fact that these companies need to compensate their CEOs for significant options and retirement packages they might leave on the table at their previous jobs. But adding to the heft of these packages, say compensation experts, are several other factors, including a desire to avoid protracted litigation should a CEO be fired and the reality that when a board is ready to hire a new leader for its company, the thought of that candidate being fired someday for non-performance is far from their minds.
Nobody really thinks the company is going to fail.
They assume there isn't going to be that problem. Compensation consultants said CEOs generally get three years' salary plus their one-year bonus when they are displaced in a takeover. They get less when they are deposed because of performance problems. But when the time comes for a CEO and their company to part ways, the talks over severance usually begin once again. What it comes down to is when the termination occurs, there are more negotiations that go on and the compensation committee tries to make the parting as smooth as possible and frankly over-generous.