Like star athletes, chief executive officers often enjoy superstar status in our society -- not to mention oversized pay for their occupation. However, this has been the year of the superstar supernova; a massive onslaught of resigning and ousted CEOs proved to be a major trend in 2011.
Still, the sting of defeat was mitigated in too many cases. Although chief executives are supposedly paid the big bucks for the risks of the job, shareholders need to watch how boards of directors continue to cushion these high-profile falls from grace.
Don't let the door hit you on the way out
For many years, boards of directors seemed to look the other way regarding all but the most egregious examples of poor CEO performance. Although such a major litany of CEOs having been shown the door this past year is a turnaround in behavior, you be the judge of how painful those departures were (and for whom), and how well corporate boards handled the situations at hand.
In some cases, chief executives "retired" from their posts without successors in mind. New York Times recently named publisher Arthur Sulzberger, Jr., as interim CEO after Janet Robinson's resignation, and word on the street is that the company's still searching for a replacement.
After First Solar's
Talbots and Avon Products
Meanwhile, several of 2011's chief executive departures could make some kind of "news of the weird" countdown for 2011.
Carol Bartz's ouster as CEO of Yahoo!
Automatic Data Processing
Although a massive number of chief executives were sent out to pasture in 2011, don't worry about the likelihood they'll show up at the neighborhood soup kitchen. Many were pushed out there with plenty of financial resources, even in cases where shareholders might rightfully believe the companies in question simply don't have money to burn.
New York Times plans to pay Robinson $4.5 million next year for "consulting services." Talbots' Trudy Sullivan will receive a $5 million severance for her troubles (and troubled tenure). And Avon's Andrea Jung simply takes a $375,000 base salary pay cut, since she will still receive an annual payout of $1 million for her new stripped-down role as chairman.
A senseless cost for shareholders
As shareholders, we can look back at 2011 and note that boards of directors seem to be getting more aggressive about dismissing underperforming CEOs. However, this is no time to become complacent; clearly, boards too often still cushion the fall of these former superstars with pretend "retirements" that guarantee handsome goodbye packages. More outright firings for underperformance would protect shareholder capital from being squandered on unearned golden parachutes and ongoing perks.
Paying for bittersweet goodbyes has helped CEO pay defy the laws of gravity. Last week, I explored GMI's data on the 10 highest-paid CEOs in 2010, and noted that four of those CEOs made major bank on their way out.
As shareholders, we must keep a diligent eye on CEO pay at the companies we own shares of, as well as on how their boards deal with chief executives' underperformance. That includes identifying the individuals serving on the companies' compensation committees, and adjusting our voting regarding these individuals using our annual proxy ballots.
Hopefully a major trend in the coming new year will be an end to pay for failure. Shareholders can't afford to overlook the negative effects of this perverse incentive.
Check back at Fool.com on Wednesday, Dec. 28 for Alyce Lomax's next column on environmental, social, and governance issues.