A severance pay of at least US$7.2 million, that's why. That's the amount, in cash, ousted Leo Apotheker will receive for getting the sack as Hewlett-Packard CEO. The figure spikes up to US$25.2 million if you include US$18 million in stock options.
Add that to his US$1.2 million annual salary, US$4 million payout for signing on as CEO and US$4.6 million for relocating, Apotheker would have earned over US$34 million in cash and stock for serving barely 11 months as HP CEO.
His predecessor Mark Hurd himself had received a cash severance payout of US$12.2 million including other stock options, when he resigned as CEO last year following allegations of sexual harassment.
Appointed HP CEO in 2005, Hurd also had been brought in to replace Carly Fiorina who also stepped down as CEO over disagreements with the board regarding the company's strategy. Her severance package rang in at US$21.4 million in cash and another US$21.1 million in stock grants, according to estimates from CNN.
So, in total, HP would have paid out over US$80 million in severance packages for ousting its last three CEOs over six years.
Last week, Yahoo also forked out US$10.4 million to fire its CEO Carol Bartz.
It's a practice that I've never understood, along with why my country's president is paid more than the U.S. president...but, I digress...
Why would major corporations pay millions for dollars just so chief executives would leave their positions? Moreover, these are executives whom, in their view, had not only underperformed but had also likely tarnished their company's reputation in the process.
It's a practice that dates as far back as 1997 when Walt Disney paid US$38.9 million to dismiss then-president Michael Ovitz, who had served just 14 months on the job. The company's shareholders later filed suit against Disney's board of directors for dishing out Ovitz's severance package which initially also included an estimated US$131 million in stock. The options were later not granted based on his dismissal from the company. The courts eventually upheld Disney's severance payment to Ovitz.
Perhaps it's because countries like the U.S. have tight labor laws, and organizations with deep pockets would rather opt for a quick and hassle-free leadership change--especially after a likely tumultuous period under the troubled CEO--than risk a long drawn-out legal dispute.
However, rewarding underperforming executives with payouts large enough probably to pull some villages out of poverty cannot possibly be an industry standard that should be encouraged.
Sure, the CEO's reputation would also be badly tarnished and the disgraced CEO might never find gainful employment again--though Hurd, for one, would not be an example of that--but there ought to be a reassessment of what should amount to a reasonable severance package such that it wouldn't be perceived to be a reward, rather than a penalty.
Commenting on Apotheker's exit cashout, Brian Foley, a New York-based compensation consultant, said in a Bloomberg report: "Not bad for a short-term job, unless you're a HP shareholder. This is yet another ex-CEO of Hewlett-Packard who does very well despite the circumstances."