Seeing the latest executive, this one with a last name of Falwell, walk away with “go-away” pay totaling $10 million, it reminds me of a broken recording playing the same song over and over again. Mr. Falwell left his leadership position because he embarrassed the reputation of Liberty University with his sexual activities with his wife and another. Could he have survived if the university was not a Christian founded one or his name was anything but Falwell? We will never know.
What further troubles many is Falwell was not fired for “cause” under his employment contract. He was let go with a severance payment. My educated guess is the Board of the university did not want to risk a law suit and fire him over cause. There are a few viable reasons for this conclusion. The directors may have their own employment contracts with their employers and do not want to go on record identifying what they think “cause” is. Another reason is money. The university may spend in legal fees and damaging publicity what they spend to make Falwell go away. It is easier to pay someone to go away. Plus, they have worked with him, so he earned some goodwill with the Board.
Yet, this is not new. It has happened since the invention of executive employment contracts. It is reported, Roger Ailes, the creator and president of Fox News, got $37 million in go-away pay after being credibly accused of multiple cases of sexual misconduct. Further, like other entertainment companies, it is reported Ailes tolerated an old-boys club where other “talents” also were accused of sexual misconduct. It is reported a famous “talent” was also paid go-away money, eg. Ailes could have been charged with “cause,” but refer to the reasons above as to why he was not. I would add a fourth for him as the Board wanted to honor his creation of this news/ entertainment network.
Sadly, it does not stop with sexual misconduct. CEOs can wreck a company’s reputation or financials and still walk away with go-away pay. I know of more than a few situations where this has occurred. And, the severance is usually a 1 to 2.99 times multiple of pay. The reason for the decimals is severance pay above 3 x compensation causes some tax issues. So, companies do what they can to keep the amount below that threshold.
Executive severance pay is a key feature of employment contracts. Most often it is deployed in merger situations where companies sell themselves and the leadership of the selling company walks away with golden parachutes. Having worked in consulting and in large companies, I can assure you that the executive ranks of a selling company spends too much time talking about severance at the expense of making the transition work. What is less an issue is these executives stopped trying to make their old company work and realized it was easier to sell and jump out of the plane with that golden parachute.
The further down the totem pole finds average workers who just get let go if they do wrong. Or, the severance pay may be only a few weeks of pay. So, having a contract means you can usually walk away with money when you make yourself expendable. Only when right-sizings, downsizings or RIFs (Reductions in Force) occur, do the lower paid folks walk away with a little more.