How is it that inept CEOs, and Football coaches are paid Millions of dollars to go away?

Question

Home Depot Inc. stock rose as much as 4 percent Wednesday after autocratic chief executive Robert Nardelli was ousted and walked away with a $210-million golden parachute after six years on the job.

Answer 1

Absolute power corrupts absolutely.

Answer 2

Two reasons: contractual obligations (perhaps you'd prefer business owners violate contracts they sign?), and incentives for the next guy you'll hire.

Football coaches are only paid those millions when they are ejected before a guaranteed contract expires. Say, he was on a 5 year contract, but is fired after only two years. Since that is a legal contract, the owner or university is obliged to honor what it agreed to pay in the contract, or else the coach can easily sue them. By paying the coach what the contract calls for, the owner fulfills the obligation even though the coach isn't allowed to continue to coach the team.

As for CEOs, there are two reasons. One explanation as to why a ridiculous golden parachute is rational is that the board must hire another CEO -- and is setting an example with its actions. If you treat the exiting CEO badly, you won't be able to hire a quality replacement. If you treat the exiting CEO very generously, it improves your chance of hiring a great CEO as replacement, because he'll expect the same if things eventually don't work out for him. So it's not about the inept guy you are firing, it's about recruiting the next savior.

You've got to remember that at a major publicly-traded corporation, a good CEO's guidance can create tens of billions of dollars of wealth for the shareholders -- that is what the board is hoping for with its next hire.

Of course the second explanation is that the CEO has enough cronies on the board that he can get away with highway robbery; or that the directors on the board are just idiots who've lost touch with financial reality. All of the above are true in various cases.

Answer 3

The Big question is Why do companies sign such things in the first place. The answer comes from the fact that Billions of dollars are at stake in those situations.

They sign an employment contract. If it's a good one, once it's signed (depending on the contract) they get "x" amount of dollars. Whether they work, don't work, do well, or screw up.

They also usually have perks, retirement clauses and buyout provisions.

So it's not so much that they're paid millions to go away, as much as it is they are paid millions no matter what.

Answer 4

It's sad, but that's the American way. I know a lot of people wished they were given a lucrative deal like the ones we hear about to go away.

Look at Baseball and Basketball. Once you sign your contract, you have money in the bank. You can screw up and do whatever. Guess what? You'll still be paid. In the real world, it's not like that. You screw up bad enough, you'll be looking for another job.

Answer 5

It's called free enterprise capitalism. You have freedom too... the freedom to NOT shop there if you disagree with their executive salary policies... Enough people do that, and the board will change the rules to stay in business.