Big Paydays for Failed, Departing Corporate Execs Give a Boost to State’s Growing Income Inequality

Monday, July 16, 2012

As California’s income inequality becomes more pronounced, stories proliferate about giant paydays for top corporate executives pressured to leave their posts.

A study by the California Budget Project shows that between 1987 and 2009, the income pie in the state expanded, but the wealthy received, by far, the biggest slices. More than 71% of income gains during that period went to the wealthiest 10%. Only 2.5% went to the middle fifth of the population.

Struggling Bay Area corporations did their part to bolster the upper class by giving lovely parting gifts to top executives on their way out the door.

Peter Darbee, CEO at Pacific Gas and Electric (PG&E), received $34.8 million in April 2011 following a “challenging year” highlighted by the San Bruno gas pipeline explosion that killed eight people and leveled a neighborhood. The company’s stock price took a massive hit as regulators and critics savaged its management and practices. Public Utilities Commission President Michael Peevey said, upon Darbee’s departure, “Obviously the company under his leadership has been responsible for several poor and consequential decisions.” 

Hewlett-Packard’s Mark Hurd picked up $23.8 million after being forced out in August 2010 amid charges that he had sexually harassed Jodie Fisher, a reality-television personality who worked as a marketing consultant for the company. Fisher sued, Hurd settled and abruptly resigned after five years in the top spot.

Hurd was followed at Hewlett-Packard by Leo Apotheker, who had lasted just 10 months at his previous job as CEO of SAP, picked up $13.2 million on his way out the door. Jonathan Yarmis, an independent technology analyst, questioned the judgment of the board that fired him: “What a mess. This board changes strategies more often than Liz Taylor change(d) husbands.”

Advanced Micro Devices’ Dirk Meyer received $8.7 million in severance after being ousted in 2011 amid criticism for the company’s lack of success in the smartphone and tablet industries.

Yahoo’s Carol Betz walked out the door with $3 million after being summarily fired in a phone call from the board chairman in 2010. She had been there for a year. The company hired Scott Thompson in January 2012 and he left abruptly in May after questions were raised about his claim of having a computer science degree. His received $5.3 million and he was allowed to keep a $1.5 million cash bonus.

Those kinds of generous separation settlements and the lucrative contracts for those who keep their jobs—like Apple CEO Tim Cook, who received $378 million for one year’s work—lead the way in creating the worst income disparity since just before the Great Depression of the 1930s.

The average inflation-adjusted income of the top 1% increased 50.2% during the 1987-2009 period—from $778,000 to $1.2 million—compared to a net drop in the income of the bottom four-fifths. That group saw their income drop to $35,000, the lowest level since 1987.

Over a longer period of time, between 1973 and 2009, the average inflation-adjusted income of the top 5% of California families increased by 78.3%—nearly five times the percentage gain for families in the middle fifth.

–Ken Broder


To Learn More:

Yahoo, HP, PG&E Showered Departing Execs with Millions (by Pete Carey, San Jose Mercury News)

A Generation of Widening Inequality (California Budget Project) (pdf)

PG&E Boss Peter Darbee Resigns with $35M Retirement Package (by Katie Worth, San Francisco Examiner)

HP Reportedly Weighs Ouster of CEO Leo Apotheker (by Jon Swartz, USA Today)

Corporate Scandals: Why HP Had to Oust Mark Hurd (by Sean Gregory, Time)

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