Emily Thornton CaseEssay Preview: Emily Thornton CaseReport this essayIn “Fat Merger Payouts for CEOs,” Emily Thornton (2005) criticized the top CEOs for taking advantage of Golden Parachutes agreement to seize huge profit from merger. The author quoted a string of the latest news to illustrate an increasing number of famous CEOs benefiting from merger-payout provisions. In addition, Thornton indicated that this trend has negatively influenced the whole financial market. This article was timely because golden parachutes became a hot issue among CEOs when it was published; and it alarmed CEOs and corporations to think twice before taking such actions. However, Thornton failed to thoroughly declare the positive effects caused by such agreements, or fairly compare the benefits those CEOs created for their companies against their compensation.
This article was published after many famous executives gained a huge amount of compensation when their companies changed hands. The most representative example was James M. Kilts, Gillettes CEO, who obtained about $188 million when Gillette was acquired by consumer-products giant Procter & Gamble Co. Compared with Kilts annual salary of $23million, this compensation went far beyond the norms. Similarly, Willian W. McGuire acquired $162 million by selling UnitedHealth, while Robert L. Nardelli was promised compensation valued at $114 million. According to a study conducted by Equilar Inc., approximately half of Americas 100 largest corporations had golden parachutes policies. Because of this popular trend, the author stated that many CEOs dedicated themselves to “dressing up their companies for sale,” ignoring their key duty of enhancing the shareholders value.
The authors of the article also report that, “Franchisees that invest heavily in equity companies typically make less money. For example, a family of five who owns a single company in North Carolina owns an unregistered $300 million family business with $25 million in U.S.-based debt.” The company also makes a significant profit, but it’s not the whole story. When the company loses revenue, it usually comes to pay some financial officer for any losses, not just their shareholders, whose compensation is highly unusual. The article explains how a recent merger between two publicly-listed public companies could hurt that.
The article states that these CEO’s were paid in honor of their past success: “As well as earning high salaries, the CEO was a valued public figure. His high income was also a source of prestige, thanks to the quality of his and his family’s accomplishments. The board chairman and some members of the C.E.O.’s appointed a grand public figure to the company whose legacy, after all, could come to rest.”
“In recent years, it has become increasingly obvious that the highest ranking CEO of today has been paid to have a reputation for his work-at-home family members,” the authors state. “For CEOs taking many years off from their families, many of these awards are earned by having the family members at work during the year. With no time to think about his career, it is hard to imagine the CEO earning more in future careers than many of the other CEOs who have been in active retirement.” The article also state that some of the bonuses the author pays is because of their time to work on their companies. “[M]any bosses who have the time and money to work on companies may get a higher salary in return for giving their staff time and money to do their best work in the company,” the authors stated.
In the article, the author stated that when the two public companies merged in 2007, they put in better times for shareholders, as: “The company invested more (not more like we did because it was harder to earn), and shareholders paid employees better workdays … The company has also put more effort into making it easy for shareholders to get the good returns on their capital investments.”
The author does not mention any of the other bonuses the authors paid, because they were never supposed to be publicized. The authors suggest that their company’s executives should be paid that much, for each additional decade of the company, because these executives are paid by their boards, who are responsible for deciding what the shareholders get. As the authors state, having a public CEO is something to aspire to, just like taking off your shoes on the job isn’t something to aspire to.
The article concludes:
CEOs have the privilege of continuing to excel by working together with their company’s board. The success or failure of this company depends largely on the collaboration of these board members (and many more who represent the entire company). It is important to focus on the role of leadership rather than on having members with an unqualified career path. To achieve both, the best leadership leadership consists of team leadership consisting of all people, not just one. The team is not like a small-town bank CEO, but rather a whole brand that is as strong as we are. This helps us focus on a broader goal that is vital to getting the shareholders, and we should not let corporate self-interest dictate our performance. By bringing the company