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Chutes packed and ready to be deployed at Sun

It seems that one cannot help gaping at accidents on the highway or reading, mouth half open, about the severance packages senior executives get when their companies change hands. Getting the old guard out is all very Machiavellian of course, and I agree it’s a good idea. Of course we don’t (generally) tip hemlock into people’s chalices anymore, so we hat to pay them to go away.

My own fascination isn’t populist horror — I’m about as far from a populist as one can get and not actually be a member of the nobility. And I’ve been around senior executives and boards long enough to understand the work involved in leading a company, especially a failing one, and to understand that these packages are often necessary to keep execs from bailing on companies for easier, and greener, pastures. I like markets, not limits, and I think that people should be compensated at whatever level the market will bear.

With all that, I present to you The Register’s reporting on the executive severance packages at Sun

Sun logoSun, meanwhile, has estimated what senior management’s severance package will look like.

Schwartz will get a $12m package that includes $9m in pay; McNealy $9.5m including $7.5m in pay; executive vice president of systems John Fowler $3.3m, including $2.3m pay; executive vice president for application platform software Anil Gadre $2.7m, including $2.08m in pay; and chief technology officer and executive vice president of research and development Greg Papadopoulos $3.7m, including $2.8m in pay.

These severance benefits will come into effect should they leave Sun either voluntarily or involuntarily – read resign, fired, or laid off – 12 months after the deal.

Comments

  1. Mark Hahn says:

    “whatever the market will bear” is an interesting concept. unfortunately, there’s little feedback from the market to influence executive salaries, especially parachutes. the market will bear absurd packages, since the only link from the market to such decisions is the Board, and that’s normally stacked with similarly over-compensated executives from other companies. so what it ends up being is “as much as they can get away with”. and that’s the problem.

    imagine a different world where the board actually tried to represent shareholder interests, and routinely fired executives of companies which are failing. how badly does the company value need to suffer before the executives are to blame?

    traditionally the argument against this approach have claimed that super(compensated) execs are necessary to make the company work, and without them, the company will fail. most recently (and egregiously) that argument was made for the obscene compensation packages for failing financial companies. most people disbelieve this argument; how is Sun fundamentally different?

  2. John West says:

    I don’t argue that Sun is fundamentally different, but this is because I do not believe that executive salaries are systemically egregious or absurd as you suggest.

    There is a direct link to markets and executive salaries — if investors didn’t believe in the executive team, or didn’t believe they were worth what they were being paid, they simply would not buy the stock of the company. Stock plummets, and company either fails or installs new management in response. Either way, temporary inappropriate deviations from “fair pay” are corrected. If stockholders (i.e., owners) do not take this action against a company, either they do not believe the salaries are out of line (and they are the owners, which makes them by definition correct), or they are not doing their job.

    Even if the owners aren’t doing their jobs and salaries ARE out of line at a particular company, it isn’t part of the salary receiver’s obligation to return salary that is above his value, in the same way that no one would expect a company earning more than “it’s fair share” of profits in some (non-monopolistic, properly operating) market would expect that company to ignore its fiduciary responsibility to shareholders to maximize profits by returning those profits that were above its “fair share.”

    In a free, efficient market (information is evenly distributed) an item of value — any item from talent to paintings by van Gogh — is worth what the highest bidder is willing to pay for it. This is true by definition. You may not feel that any one van Gogh is worth $136M, but Japanese businessman Ryoei Saito did feel that the portrait of Dr. Gachet was worth that much when he bought it in 1990, and that is what he paid for it. Oracle and Sun believe that it is worth $12M to get rid of Jonathan Schwartz, and is willing to pay it. Therefore, he is, by definition.

    It is modern sport (although by no means a modern, or original, phenomenon) to take aim at “those people” who are making “way too much money.” The simple weight of popular opinion is not enough to make an idea correct. If you want a nice thought experiment about where this line of populist thought leads, read “Atlas Shrugged”.

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