Tony Hayward is out as CEO of BP after the company's disastrous oil spill. If he leaves the company, he stands to walk away with a compensation package that includes about $1.5 million in salary and a pension worth $17 million. That will seem like an unforgivable sum to many people. But as "golden parachutes" go, his deal is actually quite modest.
In the U.S., chief executive officers exiting large companies -- even those leaving under a cloud -- can usually look forward to a soft landing.
"We've seen some pretty spectacular golden parachutes paid out during the last four or five years," says Paul Hodgson, senior research associate at The Corporate Library, which specializes in executive compensation and corporate governance issues. "Certainly one of the highest was to Robert Nardelli when he left Home Depot, which was valued by us at about $120 million."
And that was after five years of underperformance at Home Depot.
Exit packages averaging around $40 million are pretty standard in the U.S., Hodgson says. So, contrast that with what he estimates Hayward could get: "His severance would amount to a year's salary, which translates into about $1.5 to $1.6 million."
A $17 Million Pension
Most of us might be very pleased with that, but it's peanuts compared with U.S. payouts. But the 53-year-old Hayward, who has worked at BP since 1982, could also claim a pension worth close to $17 million.
Hodgson says there didn't used to be this vast difference between practices in the U.S. and the U.K.
"In the mid-'90s, when the corporate governance revolution started in the U.K., that golden parachute was one of the main targets of the code writers," he says.
The rule-makers reduced the standard exit package from three years' salary to one. The code also allows companies to pay less if the departing executive gets a new job within a year. The rules are enforced by the London Stock Exchange, not the government.
Bridging The Gap Between The U.S. and The U.K.
Hodgson says the newly minted financial overhaul law in the U.S. could narrow the difference between U.K. and U.S. exit packages. He says that part of the Dodd-Frank financial reform bill that was just signed into law "indicates that golden parachutes should now be put to shareholder votes." That could reduce the bloated consolation prizes many American executives receive when they're forced out the door.
It's quite possible Hayward may not receive any exit compensation even though he's losing his CEO job. That's because he may stay on with the company, according to Tuesday's BP board announcement. Hayward may take a position in BP's joint venture with the Russian energy firm TNK.
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