Forget the contract terms. If that top executive ever hopes to work again, he or she quickly realizes that it is prudent to adjust the payout to a level that doesn´t attract the ire of regulators and major business press.

In 1999-Q1 2000, during the height of the Internet bubble, mediocre boards could be easily steered by the headstrong CEO to grant him a fortune when he eventually leaves his post, under any circumstances short of something that would land you in Levenworth.

The commanding CEO possessed a persuasive two-part argument, at that time. First, he would point at the stock price raised by the overall market, claiming that as HIS value creation. Second, he would imply that unless he received an overly generous package, he might walk.

Boards caved in, only to discocver that in down markets, the same CEO could do nothing to slow the relentless plunge of share price. Except for those on the Board who were the CEO´s golfing buddies, directors began to wonder-- Hey, if he creates no value in a down market, how can he realistically posture himself as a value champion during expansion periods.

Brought to earth with the popped Net bubble, which brought the entire market down (and which was predicted by VBM Consulting´s Clark & Neill in their book, Net Value), there types of giveaway terms are generally nonexistent today, in April 2003.

But not completely. In the telecommunications industry, there have now been a couple of instances of senior managers receiving huge financial rewards for being part of the team that developed saviour financing, typically by squeezing out shareholders at the expense of senior bondholders.

Part of the rationale for this new form of payment is that without these inducements, key management at the company might go elsewhere and not be around to help with the critical negotiations that ensure the continuity of the firm.

But let´s examine this latest form of payment for failure. The need for the emergency financing only came about because of soem of those same managers performed senior roles as part of the management team that trashed the company´s valuation by implementing worthless business models. Rewarding some of those same unindited co-conspirators for financing to bail out the now near-bankrupt company is comparable to the teenager who kills his parents and then begs for the court´s mercy on the basis that he is now an orphan.

The walkaway argument is similarly suspect. The old management team have destroyed billions in dollars. From the perspective of increasing shareholder value, no action could be more welcome than seeing them leave. Retention bonus? How about an incentive to leave, instead?

Just as some of the richer exit packages have been ´voluntarily´ restructured following a payment-for-failure uproar, so it is that many of these bonuses aligned to refinancings will probably be re-examined in the months and quarters to come.
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