Highway Robbery at Public Companies

According to Wikipedia (which of course is always correct), the first recorded instance of the term "highway robbery" occurred in the early 1600s. Highwaymen would prey on travelers, commanding that they "stand and deliver" their money (or their life).

Maybe things haven't changed that much over the centuries, at least in the basic sense that some people feel entitled to other people's stuff. As I see it, today's "highwaymen" are corporate managements and boards of directors who expect shareholders to stand and deliver their capital into areas that destroy shareholder value: outrageous pay packages and golden parachute severance agreements.

Stand and deliver? No way, take a stand.

Parting: sweet sorrow, or sweet deal?
Hewlett-Packard (NYSE: HPQ  ) can't escape the spotlight. The company's paying outgoing CEO Leo Apotheker more than $13 million in cash and stock. Remember, this fellow hasn't even been at the helm for a full year.

Parts of his walk-away agreement include goodies like reimbursement of expenses connected to his relocation to Europe and up to $300,000 to make up for any loss in the value of his California home (poor guy). It also includes a $2.4 million annual bonus under the company's "Pay for Results" plan. That seems ironic, given the "results": HP lost $38 billion in market value during his short tenure.

Incoming CEO (and former eBay (Nasdaq: EBAY  ) chief) Meg Whitman's pay package is currently valued at $13 million, mostly in stock options which are (admittedly) tied to performance. She's also entitled to a $2.4 million target annual bonus.

If things go awry and Whitman is later let go like so many of her predecessors, she will be eligible for a lump sum payout of 1.5 times (rather than 2.0 times set for Apotheker) her annual base salary (which right now is set at $1) plus the average of her bonuses paid out over the preceding three years, as well as HP executives' usual perks. (Here's a link to her employment agreement as filed with the Securities and Exchange Commission, if you're in the mood for some light reading.)

Neighborhood proxy watch
Unfortunately, old habits are probably pretty hard to break in the world of corporate compensation committees, particularly the outrageous tendency to cushion corporate cronies from failure. Yahoo!'s Daily Ticker and The New York Times are focusing in on one of the nastiest elements in out-of-control CEO pay: those darn pay-for-failure golden parachutes.

The situation between Daily Ticker's parent, Yahoo! (Nasdaq: YHOO  ) , and former CEO Carol Bartz is just one example cited in the Daily Ticker story of a well-paid exit (nearly $10 million in cash and stock options).

One of my "favorites" of their examples has got to be Baxter Phillips' $14 million severance when Massey Energy was sold to Alpha Natural Resources (NYSE: ANR  ) last June. Massey Energy's April 2010 mining explosion was a horrifying blotch on its corporate record, which finally resulted in Dan Blankenship's resignation from the CEO post in December 2010.

Phillips got a pretty sweet deal given that he was only at the helm for about six months, and that discussions about potential mergers, including the possibility of a deal with Alpha Natural, were already well under way when he took the role. Talk about a lucrative short-term gig.

To find the real fault in CEO pay, look to the shadowy enablers known as boards of directors. My colleague Morgan Housel recently outed HP's fumblers. Small changes in HP's policies, like Whitman's $1 base salary and lowering the ratio for the severance payout, show the board's not completely oblivious to the fact that shareholders are getting fed up.

Not only can shareholders vote against compensation policies in "say-on-pay" votes, but they can also vote against the reelection of the directors who sit on companies' compensation committees. These individuals are identified in your annual proxy statement, and their names are worth noting when you get ready to cast your annual votes as a shareholder.

Shareholders shouldn't stand for it
Shareholders don't have to stand and deliver; they don't even have to stand for it. Selling shares is one option, but an even more satisfying way to stand against wastes of shareholder capital is to vote proxies accordingly next year.

HP's continued news spotlight underscores that shareholders must start holding corporate boards accountable for wasting millions in shareholder capital on chief executives who never even proved their worth. That kind of highway robbery simply has to stop.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Yahoo!. Motley Fool newsletter services have recommended buying shares of eBay and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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