As a novice programmer, I once declined a position that had a contract that stated I would be responsible for all monetary harm if I were to leak information about the project.
As I was being paid peanuts, and the project was worth millions, I knew I couldn't take any chances with that. I looked into insurance, but it would have cost over half the pay that was already peanuts.
The problem wasn't that I was worried I'd slip up, or that I'd do something unethical. My worry was that the company would do something unethical and blame it on me somehow.
If I were applying for a CEO position and saw a clause like this, I'd refuse to sign that contract, too. So United isn't wrong... There are definitely people who would refuse to work for them if they put that clause in the contract.
>that stated I would be responsible for all monetary harm if I were to leak information about the project
>If I were applying for a CEO position and saw a clause like this, I'd refuse to sign that contract, too. So United isn't wrong...
I might be reading it incorrectly, but I think there is a very big difference between capped and uncapped liability/penalty clauses. What you seem to be describing facing sounds like the latter, and yes that should give absolutely anyone, anywhere, in any situation, the screaming hibbie-jibbies. I think looking for that sort of clause, which can be subtle, is probably one of the more important things when going over any contract. As long as liability is limited the rest can be planned out, but of course nobody can sanely deal with infinities. On a larger level that's the fundamental point behind limited liability corporations, the bankruptcy code, hard learned principles regarding the non-inheritability of debt, and so forth.
But I don't think that's the same thing as a pay clawback, which is fundamentally capped. "You break the law, you face a maximum (with us) penalty of your salary for those years" doesn't seem unreasonable at all at c-level. They're not being asked to take retroactive responsibility for something amorphous like "failure", nor is the sum unbounded or affecting their personal net worth before taking the job, or even for that matter touching any money they made using their holding of that salary before the clawback like interest/investments. It feels like a reasonable deal: don't commit and (company related at least) felonies while on the job, if you do then your contract of employment was voided at that time and the company wants its money back. Again looking to corporate liability limitations, they don't apply if someone purposefully pierces the corporate veil for example. It's not supposed to be a shield against serious breaking of the law.
I can see how some clawback terms could go way too far, with trigger clauses being too fuzzy, penalties not bearing reasonable relation to the violation, or both, but I'm not sure the concept itself is theoretically bankrupt.
Maybe it is "fair". But the problem is that the market doesn't care about "fair".
Personally, I would absolutely refuse to sign such an agreement.
You can't force people to accept your contract. If all the good CEOs look at your contract and run away.... well now you are stuck with only bad CEOs who were desperate enough to agree to your contract. That is the market speaking.
It sounds like the lawsuit against United focuses on payments from a bonus program and a severance package.
If you have ever taken a job, you have signed an agreement that limits payments of performance bonuses and severance packages in the case of gross misconduct.
I suspect the employment agreements for the executives in this case included such clauses. The board failed to enforce them at an expense of millions of dollars. The investors are right to sue.
If you press the wrong button and end up making the company lose money, I don't see any reason why you should be accountable. You are paid for a job, not for having company responsibilities (otherwise you would be paid far more). Losses should be covered by processes/insurances set up by the company.
Yes, but CEOs get outrageous salaries exactly because they carry so much responsibility. If they then mismanage the company, dodge responsibility, and aren't held accountable, then what's that outrageous pay for?
They don't have to recoup all of the company's losses, but docking a serious chunk of salary is cases of behaviour that is outright unethical or malicious (rather than simply an honest mistake), should be totally acceptable.
Why don't you start an activist private equity firm / hedge fund, it seems you should be able to make massive returns by exploiting this inefficiency in the market.
Well it seems as if he is saying he can save tons of money for the company by hiring much cheaper candidates for CEO, and by extension of his logic I presume for the entire C-suite.
But the savings only apply if the money can actually be clawed back, so massive returns shouldn't be expected. However, it could lead to reduced risk by damping the loss caused by the CEO's malfeasance.
I truly believe so, yes. I think CEO is an optics and politics position, and if you have half a brain for strategy and people hiring, you're going to kill it.
What makes you say that? What is your definition of a "good" leader? If a CEO isn't a "good" leader by your measure but there are no better candidates within a given organization, then where does that leave us?
It's easy to shit on what you have no experience in.
Except that as a CEO, presumably they could afford insurance. Then again, insurance might correctly price itself based on how likely a CEO is to screw up, which I imagine is actually fairly common, and the insurance might be too expensive for even CEOs.
>In a letter to the pension fund, a lawyer for United explained that it would harm the company to give the board “unfettered discretion to recoup compensation” in cases involving wrongdoing. “Where such discretion is out of step with industry norms,” the letter said, it would “make it difficult for United to recruit and retain top talent, particularly at the senior management level.”
So United thinks that the threat of "punishment" (or really, not getting a huge payout) because of breaking the law would make them an unattractive company to people at the senior management level.
Barring the morality of it, is this statement true for anyone who qualifies as senior management? Would this deter you from taking a job at United?
If this statement is true, we likely need to do a major overhaul of the type of people we allow into senior management. If it's not true, I'm thinking this is another harmful practice brought about by the incestuous nature of board members and senior management across companies. Which is again, something else that needs a major overhaul.
The key verbiage is "unfettered discretion". It's a big leap from that to "if convicted of a crime". Yes, I would hesitate to work for an employer who could recoup my pay at their sole discretion.
Sure but "unfettered discretion" is United's choice of verbiage aka strawman. There's plenty of gray area for them to set up procedures/guidelines for appropriate clawbacks, they just don't want to. Most likely because it's in the corporations interest to have individuals within it who are breaking the law.
You're not wrong, but if you are a top Senior Level exec being recruited and only one company threatened you with compensation clawback, would you be more or less likely to take that job over others?
I imagine it's a little difficult to compare the two because there is a difference in bargaining power between a regular employee (who is closer to a commodity) and a CEO candidate (for which the applicant pool is much smaller, and company fit very important).
Secondly, a CEO, being the head of the company, could technically be held 'accountable' for hundreds of millions of dollars, and it'd be reasonable for someone to want to shield themselves from such a liability, which might not necessarily arise out of a violation of their own, but rather of the company.
In government, C-level people make less than $200k, usually a lot less, yet seem to be able to competently lead organizations consisting of tens of thousands of people. One commissioner of a multi-billion dollar agency that I knew drove a late 90s Accord a few years ago.
They are also subject to invasive and strict ethics and disclosure rules revolving door policies.
CEOs mint money because of social connections, not value to the business. The board members who implicitly endorse graft should themselves be subject to criminal sanction.
Maybe if we started hiring "regular" people for CEO, companies could spend the excess compensation on other employees so we can keep the good ones around and stop the nickel & diming that leads to a man getting beaten for riding is his paid-for airplane seat.
United's CEO was paid $19m last year (per Morningstar). United has 86000 employees. That works out to $220 per employee over the course of the year, or about $10 per paycheck (gross).
If you dumped all the executives, the raise amounts to $30/paycheck.
Do you think $600/year is the difference between good employees and those that let men get beaten?
Morningstar's free summary doesn't break down cash vs. equity. The latter is mainly being paid by shareholders and wouldn't represent cash that was available to distribute to employees. Therefore it is highly likely that the "windfall" of a regular Joe CEO would be much less than I have noted here.
At the low end of wages I think 600 a year would alleviate enough stress to show an improvement in employee behavior. People don't usually wake up thinking they'll half ass their job or make a poor decision that day, but when you are dealing with the stress of paying rent or putting food on the table it just pushes you that much closer to cracking
It's not about bargaining power, it's about even considering them for the job. Wouldn't you think they were telling you they're probably going to turn out to be more trouble than they're worth? I'm pretty sure that's what conventional wisdom says is the correct response.
...but I'd be 20x more keen to take a job at a company who doesn't fire on suspicion. E.g. a company who stands their ground and says: "We know we're subject of a PR campaign against us, but we respect the presumption of innocence: We won't fire X because he hasn't yet been proven guilty in court, and we will fire any that is proven guilty." i.e. GitHub, Mozilla both have fired CEOs on unproven claims.
A CEO's job is to champion the interests of their company. If they're mired in controversy, legitimate or otherwise, their ability to do that job is compromised. Sometimes, it's the right move for the company to stand by an unpopular CEO. Other times, it's better to walk away.
Customers and investors are fickle, and often irrational. Supporting a CEO that is driving both away because "presumption of innocence" might be the worst possible move you could make, depending on the situation. In fact, I'd argue that a hallmark characteristic of a good CEO is someone who can say, "My continued presence is hurting the company. I need to step down, so everyone else can succeed" if that's what's needed.
Yes, even if the controversy is completely made-up bullshit.
In the long run, the company and the (former) CEO will both be better off if they can look back at a gracefully handled departure, where everything turned out to be so much noise, than some Pyrrhic victory, where you've alienated customers, investors have walked, but, by god! you stood by your CEO!
Hoping that it will fix the perceived problem is exactly the mentality of everyone who attacks anything justly or unjustly for any reason thats why they're doing it.
What about proving the felony in court and make him pay for hurting shareholder value?
The upside of following courts and presumption of innocence is, you can tell your next CEO, "This won't happen to you because you'll respect the law, and what's more, if you respect the law we'll even respect the presumption of innocence and keep you in your job much longer than at Mozilla's and GitHub's. And you'll be clean of controversy when you leave, so it will be much easier for you to jump on an even bigger CEO position."
Actually, I could see that drawing some people just as it repels others. IT signals that the company is serious about acting responsibly, and putting incentives in place so its management does so. Some people may want to work at a place where they don't have to worry about being pressured into something they thought was wrong, and a signal like this may attract them.
> Sure, you can see that. But in the real world, outside of a thought experiment, nobody would.
You should contact some behavioral economists and offer your services. I'm sure they could use someone that knows exactly how people are going respond to complex behavioral questions with multiple competing incentives. They could save a bundle on the speccing and running of experiments.
It depends what kind of candidate the exec is. Personally I don't enjoy working for places that are known for not firing low performers. I'd rather work somewhere that has higher stakes and higher rewards.
That kind of mentality is more likely to attract execs looking for a cushy high paying job with little to risk.
It's not only firing, it's also taking back money already paid. Imagine the company had particularly good year, you get $LOTS_OF_MONEY, you spend it on $LUXURIES, and then next year something goes wrong, and the board decides it's your fault, and suddenly you owe $LOTS_OF_MONEY back. And you've already spent it, or invested it in some illiquid asset. Maybe very uncomfortable situation, much worse than plain firing. People aren't used to take that level of risk, so many may be reluctant, especially if other options are around.
I was imaging something like unvested equity. Yes that's a lot more aggressive. Contracts often require employees to pay some of the back signing bonuses and relocation fees if they leave within a year. I've heard rumors that it's not commonly enforced but contractually it's a possibility. But in theory there is precedent of that for employees where paying back a 100k signing bonuses and relocation expenses is a big risk and you still senior software engineers relocating to the bay area under those terms.
We're talking about severance pay that they were paid in the course of being fired. It's not clear to me that it should have been paid in the first place.
Well, if that's just severance that may be simpler case. But in general clawback clauses may extend years behind. OTOH, Wikipedia says[1]:
The prevalence of clawback provisions among Fortune 100 companies increased from lower than 3% prior to 2005 to 82% in 2010.
If everybody (or nearly everybody) starts doing so, then the competitive disadvantage of having such clauses is reduced, since it may still be better to have risky CEO job in F100 company than not having one.
They do have a good point. For the airline industry & its norms, any sort of ethical requirements will undoubtedly hamper their ability to hire "industry talent".
Apparently United won't take back bonuses even when it's CEO stepped down during a federal corruption investigation, and claims it's because it's not the normal industry practice and would make it hard to recruit top talent.
I'd think top talent would, you know, behave ethically, and not, for example create a special mostly empty flight that's convenient for a politician just to get a hanger in Newark approved.
> CEO's are much more often psychopaths than average.
I'm betting you can't back that up with a significant study that provides actual proof of that common claim. I've seen this statement made routinely for two decades online and have never once seen it supported with anything concrete.
I find that hard to believe. Surely they're MUCH more likely to be psychopaths. It's almost the job description, at least under late stage capitalism in a declining society :)
I'd want hiring and compensation tied to behaving ethically, if I was on United's Board. I consider someone a better CEO if they don't become the subject of a federal corruption investigation and have to step down.
He also seems to have tanked customer satisfaction ratings. He was CEO of UAL from the beginning of the continental united merger in October 2010 to September 8, 2015. Here's a relevant article. https://www.nytimes.com/2015/09/15/business/despite-shake-up...
Just because more CEOs are psychopaths doesn't mean that psychopaths are better at doing the work of CEOs.
Frankly many CEOs seem to favor short term gains that benefit themselves and their stock option grants over improving quality and long term growth. I don't know that this guy is a psychopath, but I'm not interested in flying United if I can help it.
I didn't mention psychopaths, however you implied a positive correlation between ethical behavior of CEO's and being top talent; my questioning that implication doesn't imply the opposite, it could be there is no correlation in either direction.
The reality is there is opportunity to make money by breaking the law. Fines/punishment are too often not great enough to deter law breaking even in the even that the perpetrator is caught, let alone the fact that there is a chance they won't get caught.
We'll never be able to weed out "bad people, so the best solution would be for the government to take a stronger stance and corporate law breaking and to dole out much bigger fines.
However, then we have the same problem with many CEO's/senior management in a revolving door with government/lobbying. So we've got another buddy-buddy system that ensures the .1%+ almost never have to be held accountable for their poor actions.
This may sound strange - but I don't think what the CEO of United did should be a crime or is at all unethical - the unethical conduct was the demand of what amounts to a defacto bribe by the head of the Port Authority.
Even then - 50 years ago it was commonplace to use cross-subsidization to fund routes like this - the ICC would do it - "Okay, so you want to offer a route from Newark to Los Angeles? Sure, we'll grant it, but you have to offer service between Los Angeles and Tuscon, Santa Fe and Flagstaff as well."
Now admittedly, this doesn't pass the smell test - because the demanded service was probably not in the public interest - but this kind of thinking was used in the transportation industry for quite some time.
In order to establish a set of norms in a community, it's not enough to punish people who violate the norms; you need to punish people who don't punish people who violate the norms. In other words, you need to watch the watchers.
To reframe that principle in this context, it's not enough to punish people who ask for bribes. You need to punish people who answer those asks, rather than reporting them.
What we really want is to create incentives against corruption. If a public servant asks you for a bribe, it should be legal to pay it. You are then in the clear to turn around and report them. But making both parties equally guilty leads to the initiator having power over the other. When that happens, neither want to disclose except as part of mutual assured destruction.
That's pretty obviously unethical. He did something that damaged the company to personally benefit a public official.
If you're a CEO of a public company and cannot sniff that out, you're screwed.
The example you gave is not at all analogous. The FAA or its predecessor was regulating airlines in the public interest. Towards that objective, they allocated routes with high and low profitability.
If he hadn't agreed to keep the unprofitable route, United would have lost important and far more valuable access to Newark. How did that damage United? Clearly he put the interests of the company and it's shareholders first, if I was a board member I'd have trouble punishing him too. There is a huge difference between willingly committing a crime and being extorted to commit one.
I understand where you're coming from, but that is effectively the basis of corruption. For each corrupt transaction, both parties technically benefit as you are framing it. If you get stopped at a roadblock by a corrupt police officer in Angola, you're better served paying than turning around and going back where you came from. However, you and the greater good are served by the roadblock not existing in the first place. The intent of cracking down on corruption from both ends of it is to disincentivize and dismantle the roadblocks.
We're talking about a story where the CEO of a Fortune 100 company was party to a felony and paid $30M to leave. I'm sure the US Attorney showed up and was sniffing around United's books as well.
I'd say that taint is worth more than the hanger.
And frankly, the guy wasn't some unwitting stooge. He could of picked up the phone, spoke to the governor of NJ or NY and made it go away. It requires a moderate act of courage and integrity.
He was not charged or convicted, of a felony, or a misdemeanor, or anything.
He wasn't paid $30M to leave. He was forced to step down and paid what he was owed due to his contract, he was getting that $30M regardless.
The man who extorted him was a potentially valuable political ally for the Governor of NJ, calling the governor to complain might have caused United even more problems. Calling the Governor of NY about a New Jersey problem would have been even more damn ineffectual.
And lastly, the fact you think a CEO can just call governors to "work out" problems being extorted by politicians is one of the most naive things I've yet read on this site. You are basically saying he should have offered campaign donations to get Chris Christie or Andrew Cuomo in order to get them to crack down on one of the heads of their Ports Authority. Because otherwise they don't pick up the phone, so essentially you think he should have paid a second bribe to get out of paying the first.
>Faced with egregious executive behavior, directors should at minimum claw back bonuses. Not to do so sends the message that there is impunity for improper behavior at the top.”
American exceptionalism at its finest, where the more exceptional you are, the more your behavior is excepted. If you really screw up, you may have to be put under house arrest.
The only thing we will not except is stealing from the rich and powerful. Madoff learned that the hard way.
If you set a precedent of taking back pay from executives convicted of bribery and other crimes, you won't be as competitive when hiring other criminals in the future. That's essentially United's argument here. Gotta stay attractive to future, potential criminals, after all.
Given recent studies about the economic costs of ethical behavior, I think you could make a pretty ironclad case that criminals are more likely to generate profit for the company under current conditions than ethical 'good' people would.
As such, the larger the company and the more capital it's responsible for, the MORE necessary it becomes to the company to find the most evil, biggest most psychopathic criminal to guide it, given that profit is the only measurable feature and the only thing that concerns the company in any way.
It's just the system. This is what you get, and betting against it is like betting against the tide. They do in fact have to be competitive about hiring bigger criminals because failing to do so can be fatal to the company, when it's set against other companies with no such compunctions.
So in other words, the law fails us once again. If we had serious criminal penalties for taking bribes (and other executive "white collar" crimes) this wouldn't be the case. Since we can't and won't implement reasonable criminal justice policies in the US, how about a mandatory minimum of 10 (or 20, who's counting at this point?) years in jail for any executive taking a bribe without the possibility of parole? For every violation. And three strikes, you're out. I guarantee you'd see a change quickly. Or, at least, more rich white men in prison. And some would go in for life from the start (3 strikes). It goes without saying that upon such a conviction, all assets would be seized and these people would not be allowed even a dollar to go towards their lawyers. Just in case you had thoughts they'd get off because of high-priced lawyers ... And just to top it all off, when you can't prove the case against the executive who took bribes, you throw his wife in jail for 20-30 years because she doesn't know what's going on and can't rat out the higher ups.
I worked for a toxic CEO roughly three years ago, and, to answer the article's rhetorical question - he/she has to behave badly enough to hurt long time investors' pockets.
I only made it a year under a micromanaged, 'everything is urgent' environment. It all stemmed from the CEO. He was in every meeting, including dev initiatives. Not only did he have no significant technical knowledge -- he also lacked in areas where I would expect most CEOs to excel: market strategy, branding, and finance management.
My exit was a large blow to the company, as a lot of co-workers saw me as the unicorn who would 'fight the good fights' for everyone else. And, I did -- until my health started to decline from the stress.
The story ends with me perusing LinkedIn one day, after five+ former co-workers had left, with him stepping down as CEO. He would have never made this decision on his own (pride, control), so I know that external investors definitely dictated this.
So, I would say pay gets clawed back when CEO's consistently make poor business decisions and over promise/ under deliver to investors in order to obtain more funding.
Even in the egregious Wells Fargo case, the executives whose pay was clawed back were still money ahead to the tune of 8 figures (Tolstedt) or 9 figures (Stumpf). Thousands of low-level employees were ruined, though.
I am more concerned that a public figure can basically coerce if not blackmail anyone and get a free year confinement in their own vacation home. that is simple astounding.
Responding to title, he has to wrong the elites that gave him that position enough for them to take action. The elites are usually the board composed of other people who benefit from overpaying CEO's. It's a club that helps each other out. Piss off the club and you're gone. Same goes with Congress and regulators to a degree.
An example would be how the SEC often ignores big players or gives them fines that barely matter. However, they and everyone else will pile on a CEO that pissed off big players in government.
I want more companies to try something: take a random guy from your existing non-management workers, pay him a nice but not exorbitant wage ($100k?), and make him CEO. Then see if he can really do any more damage, or make any poorer decision, than one of these hot-shot CEOs. Seriously, what do they have to lose? Some CEOs seem to screw up everything imaginable and leave in 6 months; isn't 6 months of $100k (i.e. $50k) worth the experiment instead?
If a C.E.O. behaves badly enough, and the board had knowledge in there ledgers- and did approve, because they did not read carefully enough- they have become accomplices in a crime. Thus, compadres if you want for the omerta to hold, you better dont want the paycheck to fold. We all paddle on in this boat, or drown holding one anothers throat- thats the choice.
Its the same mechanism that holds together corruption networks, basically everyone has the gun trained on everyone - a giant Ponzi scheme, where every new member can expect money, and the originators have to come up with ever greater sum to silence the mexican standoff.
The have a board member who's an exec at the well-known NGO Partners In Health. It's hard to imagine a better-run org. Maybe the disgraced executives should consider making large-scale donations to PIH.
Of course, that doesn't make the shareholders whole.
As for the "hard to recruit and retain top talent" argument ... that's the oldest and most miserable excuse in the book for tolerating bad execs.
As I was being paid peanuts, and the project was worth millions, I knew I couldn't take any chances with that. I looked into insurance, but it would have cost over half the pay that was already peanuts.
The problem wasn't that I was worried I'd slip up, or that I'd do something unethical. My worry was that the company would do something unethical and blame it on me somehow.
If I were applying for a CEO position and saw a clause like this, I'd refuse to sign that contract, too. So United isn't wrong... There are definitely people who would refuse to work for them if they put that clause in the contract.