SOURCE: The Corporate Library

November 15, 2007 13:33 ET

Subprime Golden Parachutes Could Cost Shareholders More Than $1 Billion

PORTLAND, ME--(Marketwire - November 15, 2007) - If boards were to fire each of the CEOs whose companies are most closely associated with the subprime mortgage crisis, it would cost shareholders an estimated combined total of $1 billion, according to a new study by The Corporate Library. "The subprime mortgage crisis has already claimed two CEOs -- at Merrill Lynch and Citigroup," said report author Paul Hodgson. "No one can predict how many others may be encouraged to 'retire early,' but it has been amply demonstrated that terminating CEOs is a very expensive business, with or without an employment agreement. The 'good news' is that, largely due to the destruction in equity value many of them have overseen, it would have been over $360 million more expensive to have fired them at the end of 2006. Nevertheless, these are prime rib parachutes for subprime performance."

The average severance benefit for the 'subprime' CEOs is close to setting a new record. The elevated average of $66.4 million is largely due to the $299.2 million owed to Richard Fuld, CEO of Lehman Brothers. In all but one case (Goldman Sachs), the amount of severance benefit either decreased between the end of fiscal 2006 and November 2007, or stayed the same.

The 16 companies in the study were selected because they have either experienced or could potentially experience significant write-downs and/or losses as a result of the subprime mortgage crisis. Companies include Bear Stearns, Lehman Brothers, Freddie Mac, Fannie Mae, Barclays, and Washington Mutual.

The Corporate Library's estimated total severance benefits have been calculated based on the value of unvested equity as of the average of the high and low stock price on November 6, 2007. In addition, vested retirement benefits (including non-qualified deferred compensation (NQDC) and supplemental executive retirement plans (SERPs)) are included. All terminations are based on a termination without cause or by executive for good reason.

The report is available from The Corporate Library's online store at www.thecorporatelibrary.com. Review copies may be made available to members of the press on request.

About The Corporate Library

The Corporate Library provides independent corporate governance research and analysis to enable its clients to enhance value. The company's line of corporate governance information products, research services and data are sold to many of the world's leading corporate governance stakeholders. Leading-edge corporate governance research is created by industry thought-leaders using a proprietary database of governance and compensation information on over 3,000 public companies and over 30,000 executives and directors. Additional information on The Corporate Library and its suite of online corporate governance data and analysis products and custom research services can be found on its website at www.thecorporatelibrary.com.

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