December 30, 2003

Severance Pay in the Headlines

Over the past few weeks, severance pay has dominated the news headlines. We have last week’s SEC enforcement action against the former CEO of Vivendi that included his relinquishment of $25 million of severance pay (which consisted of the amount he negotiated when he resigned). The SEC’s action was the first use of Section 1103 of Sarbanes-Oxley (because the SEC froze the payment before it was made pending its investigation) and the amount has been placed in escrow, with the intent to pay shareholders under the Fair Funds provision of SOX.

The NYSE is considering suing Dick Grasso to recoup some of the severance payments it made (and Grasso is allegedly considering suing to get some of the money he left behind). And the Office of Federal Housing Enterprise Oversight has sued the former Freddie Mac CEO and CFO to recoup severance payments made to them after they were fired this summer.

Shareholders have been more actively speaking out on severance pay. Quite a few shareholder proposals that sought to limit severance pay got majority votes this year, including one at Qwest last week.

The recent NACD Blue Ribbon Commission Report on Exec Comp recommends that severance pay should be limited to 2x-3x of base pay (not other forms of comp), with reductions in cases where the CEO is asked to leave over performance issues or eliminated entirely if the CEO resigns for another position or “for other reasons.” It also recommends that the package size be tied to tenure through a vesting formula that requires a certain period of service (eg. 5 years) to receive the maximum benefit.

The Most Overlooked Features on

I thought I would close out the year by noting some valuable features on that might not be well known:

HTML Version of Corp Fin’s Accounting Training Manual (on

Q&A Forum on Rule 144, moderated by Bob Barron and Jesse Brill

20 Areas of Sample Disclosures, complete with analysis

List of Links to Director Education Programs

Comprehensive MD&A Library in HTML, courtesy of Linda Quinn and Ottilie Jarmel