GM Makes Exec Exit Policies More Stringent

Anthony Fontanelle
May 14, 2007

General Motors Corp.'s executives like Rick Wagoner, have a multimillion dollar golden parachute to protect them if the company is ever to be taken over. But this year, the automaker made its policies under which its top executives can receive severance payouts more stringent. Before they could get millions in takeover, now dismissal without cause is the automaker’s only way to collect.

According to GM's proxy filed April 27, Wagoner stands to receive up to $14 million in severance and stock payouts. Other GM top execs have similar exit packages. In the past, only a change of control at GM was necessary to activate the payouts. But under the automaker’s new policy, the executives also would have to be fired without cause to receive the payouts. Corporate governance experts said that revised policy is more reasonable to shareholders.

The requirement may be one reason why the America’s largest automaker decided to alter its policies this year. "It's a combination of 'We have to disclose this stuff, so we need to make it as pretty as we can, and just wanting to be more responsible," said Dan Moynihan, an executive pay expert with Compensation Resources Inc. in New Jersey. "Companies are doing this out of a desire to make executive compensation as shareholder-friendly as possible," he then also adds.

This is the first year the Securities and Exchange Commission has required public companies to disclose details about what executives could get in total compensation if they were to be fired. The new rules were triggered by heightened scrutiny surrounding corporate accounting practices and executive pay packages. Additionally, the disclosures confirm that severance packages have become usual among large corporations. That is especially true in the auto industry, where the increasing clout of cash-rich private equity firms combined with the declining capital of automakers is making even the giants more susceptible to takeovers.

"In the current environment, every company needs to be concerned with protection from a takeover," said analyst John Casesa, the managing partner of Casesa Shapiro Group. "It's not unusual anymore,” he affirms.

According to GM's proxy, Wagoner's payment would come in the form of $9.4 million in stock and options that would become fully vested upon his termination. He would then be eligible for up to three times his annual $1.65 million salary and that is approximately $5 million. Tightening the policy was "a good thing to do from a corporate governance standpoint," GM spokeswoman Julie Gibson said, adding that such provisions are increasingly common in corporate America.

The new policies would serve as Active Brakes Direct that could put to a halt the intensifying injuries suffered by the ailing giant. The automaker has provisions in place for four other executives. Vice Chairman Bob Lutz has the second biggest deal, with $4.8 million in stock and options and potentially $3.5 million in severance pay. Chief Financial Officer Fritz Henderson would get $2.9 million in stock and options and up to $3.5 million in severance and manufacturing chief Gary Cowger would get $1.4 million in stock and options and $2.6 million in severance.

At the Ford Motor Co., chief executive Alan Mulally could get $27.5 million if he were to be fired as part of a Ford buyout. Obviously, this comparison spells the big difference.

Source:  Amazines.com