Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, May 29, 1990 TAG: 9005260269
SECTION: BUSINESS PAGE: A5 EDITION: METRO
SOURCE: KATHY M. KRISTOF LOS ANGELES TIMES
DATELINE: LOS ANGELES LENGTH: Medium
Consider the good things that could happen to Sidney Jay Sheinberg. If the president of MCA Inc. lost his job within a year of the company going through a "change of control"- that is the term MCA uses - he would take home $16.8 million in cash, or roughly 23 times his normal salary.
Fearful of losing their jobs one way or another, more and more executives are obtaining commitments for such farewell payments as terms of their employment. While deals as rich as Sheinberg's are unusual, the ones out there can be plenty lucrative.
In theory, "golden parachutes" are supposed to ensure that managers put aside selfish concerns about their own employment prospects in the event of a takeover - and negotiate instead in the best interests of all shareholders. But golden parachutes can get out of hand.
Sometimes, potential pay-outs for departing executives are excessive, according to compensation experts. Other times, companies grant the parachutes to so many employees that the expense of triggering severance agreements actually deters takeovers and may thwart the interests of shareholders.
Again, consider MCA. The company has granted 364 other employees parachutes that generally would guarantee them lump-sum payments equivalent to three times their normal salaries, plus benefits and stock.
MCA does not disclose how much these agreements could cost the company.
Assuming, however, that each of these executives earns an average of $75,000 annually, the salary payments alone would amount to $82 million.
Add the stock payments, the cost of the benefits and the money payable to MCA's five top dogs, and you come up with a figure high enough to wipe out a full year of earnings at the Los Angeles-based entertainment company.
More lucrative still is Armand Hammer's severance agreement. Occidental Petroleum Corp.'s 92-year-old chief executive can quit as much as a year after "he has knowledge of the change" of corporate control, or if there is a major breach of his employment agreement, according to a company proxy statement.
He is guaranteed his salary, bonus (adjusted for cost of living increases), perquisites, employee benefits, life insurance benefits and pension and long-term incentive benefits until the end of his employment agreement. His employment agreement, which runs until 1998, is automatically extended for seven years beyond any point after Feb. 1, 1991. In short, it always has seven years to go.
The estimated value of Hammer's severance deal exceeds $16 million.
by CNB