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One reason that CEOs get good severance packages is to entice them to leave other successful companies. If they are doing well at those other companies, are wel
by tmoertel 2y ago
One reason that CEOs get good severance packages is to entice them to leave other successful companies. If they are doing well at those other companies, are well liked by the board, and can reasonably expect to make a lot of money, why should they leave that safe, lucrative situation to come to your company, where there's a higher risk of failure or of falling out with the board? Enter the severance package. It guarantees the incoming execs a minimum payout that's large enough to entice them to give up what they'd expect to safely earn by staying where they are.
- michaelt 2y agoThat's a great explanation for signing bonuses. Doesn't do much to explain severance packages though? Unless the board wants to give a signing bonus, but the amount is so egregious the shareholders would riot, so they need to do it by stealth.
- pluc 2y agoSeverance packages are usually negotiated from a position of power. You want me? Great, I'd like a 2M golden parachute. If everyone they interview agrees to play the same game (and they do), it becomes a "necessity to attract top talent".
- tmoertel 2y agoYes, if you're an executive being lured away from your current position, both signing bonuses and severance packages will serve as insurance against your new position not working out. But, if you're on the board that's trying to lure an executive away, you should prefer severance packages to offer this insurance because you don't have to pay out until the relationship falls apart, and if you've chosen your new executive well, the relationship won't fall apart.