Golden Parachutes Should Stay to Stop Firms Gaming the System, says Pay Scheme Expert

A 'golden parachute', which is a compensation package given to executives when they leave a company even if they are fired, should remain as a part of senior staff contracts but industries should make the pay deals more public, says an industry leading expert.

Speaking at the CompCloud14 conference in San Francisco California, Erik Charles, principal incentives strategist at Xactly told IBTimes UK that while companies should focus on long term schemes to boost and retain employee productivity, the aspect of giving employees the right to have a pay-off should remain in place.

"You've first of all got to think about why golden parachutes exist in the first place. For instance, you can't have senior staff voting against or preventing profitable acquisitions from going through because they are worried the result could possibly hurt their position in the firm," said Charles.

"Also, what if you were forced out from the company for whatever reason or you were let go without an apparent cause, would it be good [for working morale] to know that you could leave a company without any form of buffer?

"However, making golden parachutes public, would help bring more transparency and understanding."

Xactly is a software firm that works with a range of companies of all sizes and industries to provide research and insight into optimal incentive compensation programmes, while also motivating staff through performance management.

Furore Around Golden Parachutes

Companies around the world usually draft a severance package, or golden parachute, for senior executives in the event they leave the group later down the line.

While clauses are in the contract, banking executives in particular have fallen under scrutiny for still being paid millions of dollars in compensation, even if they left amid hefty financial scandals that happened under their watch.

In the UK, Royal Bank of Scotland's ex-CEO Stephen Hester came under regular fire for receiving a bonus, despite wading through a raft of market rigging scandals and mis-selling claims. He soon left the company after cashing in his deferred bonus package.

The same outrage has been applied to the fact Lloyds Banking Group, Barclays and the Co-operative Group have all ramped up pay and rewards schemes for bosses while still tussling with various authorities over a range of corporate and retail misdemeanours on various scales.

When Bob Diamond left Barclays, amid the Libor rigging settlements with US and UK authorities, he was still paid a multi-million pound package.

Meanwhile, around seven years after the credit crisis first came to the fore, Charles says that the corporations are reverting back to the "natural order" of compensating staff through incentive programmes to near pre-recession levels.

However, Charles says that he understands why the public becomes outraged at seemingly huge payouts for company executives, especially in the banking industry, in light of a raft of financial scandals.

"I always say that executives are just employees with a fancier title. When you take away the title you have got to think about how you would want to be treated as a member of staff," said Charles.

"If you were let go from your job, would you want to receive a severance cheque? By axing golden parachutes of any kind, it could pave the way for companies to game the system. For example, a company letting someone go on 1 December, knowing that they can get away with not paying compensation to the employee, who would have been owed some form of cash in the New Year or when a bonus is due."

Don't forget to check out IBTimes UK for more coverage on CompCloud14 from San Francisco, California.