November 16, 2005

Shareholder Approval of Golden Parachutes

On the heels of the recent Congressional bill that would require shareholder approval of any golden parachute payments – “The Protection Against Executive Compensation Abuse Act” – CalPERS has voted unanimously to oppose the proposed $8.1 billion merger of UnitedHealth Group and PacifiCare Health Systems Inc., unless the companies bring back the $345 million in executive bonuses that would be paid as a result of the transaction for a separate shareholder vote.

CalPERS said in a press release that its decision came after the release of PacifiCare’s proxy statement that shows the company’s management started merger discussions with UnitedHealth almost six months before PacifiCare’s shareholders were asked to approve “a very favorable compensation package” for management and the board in the event of a change in control of the company. In comparison, ISS has a contrary view on the golden parachutes due to the different way it analyzes parachute payments – see this article on its analysis of the merger.

Word to the wise: excessive golden parachutes can tank a deal these days – and what is considered excessive these days is less than what it used to be. A similar message was delivered by former DuPont CEO Ed Woolard (and current Chair of the NYSE compensation committee) in this 10-minute video on – essentially, Mr. Woolard doesn’t believe that any CEO should receive any different severance arrangement than any other employee in the company. Learn more about the original purpose of severance payments in this recent issue of The Corporate Counsel.

To learn more about the recent Congressional bill noted above, go to Monday’s entry on the blog (in fact, if this is your first visit to this blog, you should check out blog as well).