Raymond F. O'Brien probably can't complain too much about his pay. The chairman and chief executive of Consolidated Freightways, a Palo Alto-based transportation company, earned just under $1 million for his labors in 1986.
And if the company is taken over and O'Brien loses his high-paying job, he shouldn't feel too bad either. The company has agreed to give O'Brien a lump-sum severance payment--otherwise known as a "golden parachute"--worth $3.72 million in the event of a change in control.
O'Brien's golden parachute is among the largest enjoyed by California executives, but it is far from unique. Although they have been harshly criticized by many shareholders and employee groups as elitist and needlessly lucrative, golden parachutes for top executives can be found at about four of every 10 major California companies, according to a survey conducted for The Times by the compensation and employee-benefits consulting firm of William M. Mercer-Meidinger-Hansen.
Mercer-Meidinger-Hansen's review of the proxy statements of 239 public companies statewide found that in some industries, such as entertainment and financial services, more than half of the companies surveyed provided golden parachutes.
FOR THE RECORD
Los Angeles Times Tuesday October 6, 1987 Home Edition Business Part 4 Page 2 Column 6 Financial Desk 2 inches; 46 words Type of Material: Correction
Due to an editing error, Times Mirror Co. was omitted from a list of California companies with golden parachutes published on Sept. 28. Golden parachutes were defined as termination agreements triggered by a change in control. Times Mirror's plan involves accelerated vesting of a supplemental executive retirement plan.
"The proliferation of golden parachutes is the direct result of the merger mania of recent years," said Michael O. McCullough, a Mercer-Meidinger-Hansen associate and director of the survey. Golden parachutes, he said, were virtually non-existent four years ago. Despite continuing criticism of the severance payments, they continue to grow and have become so commonplace that many executives expect them as a condition of employment, McCullough said.
Executives with parachutes constitute a who's who of California's corporate elite. Turnaround artist Sanford C. Sigoloff of Wickes Cos. has one, as does movie mogul Alan Ladd Jr. of MGM/UA Communications Co. Other parachute-clad local executives include National Medical Enterprises Chairman Richard K. Eamer, Fluor Corp. Chairman David S. Tappan Jr., Lockheed Chairman Lawrence O. Kitchen, Caesars World Chairman Henry Gluck, Glenfed Chairman Raymond D. Edwards and H. F. Ahmanson & Co. Chairman Richard H. Deihl.
The Gap Inc. President Millard S. Drexler, California's highest-paid executive last year with total compensation of $7.7 million, also has a parachute. Half of the state's 10 highest-paid executives, as ranked in The Times' 1986 survey of California executive pay, are covered by the controversial plans.
Golden parachutes--legally defined as severance packages for executives that take effect under a change in control--vary widely between companies, the Mercer-Meidinger-Hansen survey shows. Many plans offer a lump-sum payment equal to a multiple of the executive's current salary. But some offer only one year of base pay while others offer as much as five times base, even though some of the higher amounts may be considered excessive by the Internal Revenue Service and may subject the recipient to a penalty tax, Mercer-Meidinger-Hansen's McCullough said.
Many parachutes also offer other benefits, such as accelerated vesting in pension plans and stock options.
Some executives get parachutes even if they don't lose their jobs under a change in control. Some get them even if a suitor acquires as little as 10% of the company's voting stock. Parachutes at Walt Disney Co. and Pacific Scientific Co. even provide for reimbursement of legal fees--in case the executive sues an acquiring company if it won't honor the golden parachute.
In a growing number of cases, parachutes are extended to entire management teams, not just the chairman or chief executive. Companies with these "group" parachutes include Litton Industries, Henley Group, Advanced Micro Devices, Great American First Savings Bank, Genentech, First Interstate Bancorp, Farmers Group and Whittaker Corp.
A number of companies around the country--among them Mobil, America West, Diamond Shamrock and Herman Miller Inc.--offer so-called tin parachutes that provide benefits for all employees, non-management as well as management. Because companies are not required to disclose these tin parachute arrangements, Mercer-Meidinger-Hansen could not determine which California companies have them.
Some companies, such as Occidental Petroleum, Walt Disney Co. and Gibraltar Financial Corp., exclude their chief executives but include other senior executives. At least one California company, Amfac Inc., extends parachutes to its directors.
Of course, many firms eschew parachutes. Some executives clearly don't need them. Columbia Savings & Loan Assn. Chief Executive Thomas Spiegel, fifth on The Times' list of highest-earning California executives in 1986 with total compensation of $3.86 million, does not have a parachute. Why should he? He, his family and other company insiders control more than half of Columbia's stock, making a hostile takeover highly unlikely.