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CEOs’ golden parachutes stay at high levels

Robert Marcus, who’s been chief executive of Time Warner Cable for less than three months, stands to receive nearly $80 million if Comcast buys the company and he leaves his job, according to a recent regulatory filing.

If Marcus receives the payout, it would be among the largest golden parachute benefits awarded since 2011, according to an analysis by executive compensation research firm Equilar.

It’s been several years since the financial crisis ignited outrage over executive compensation and the ensuing Dodd-Frank reform legislation gave investors the right to vote on executive pay. But that $80 million figure makes one wonder how much executive safety nets have actually changed.

The short answer is: some, but not enough to let the air out of those parachutes.

Yes, corporate boards are under increasing pressure to not cushion chief executives’ landings too much. New regulations, shareholder activism and greater public scrutiny are also constraining the figures. One recent study by the professional services firm Alvarez & Marsal found that among the largest 200 U.S. public companies, the value of golden parachute benefits has remained flat, falling slightly from $30.2 million in 2011 to $29.9 million in 2013, despite a booming stock market.

But until companies change how they treat the piles of stock options and restricted shares that executives typically become eligible to receive – for instance, $56.5 million of Marcus’ potential $80 million payday would be in equities – lucrative golden parachutes will probably remain fairly common.

“Unless you attack the biggest piece of it,” says Paul Hodgson, an expert on executive compensation with governance research firm BHJ Partners, “you’re not really going to change anything.”

A Comcast spokesman referred inquiries to Time Warner Cable, which declined to comment regarding Marcus.

“Golden parachute” has become a generic term for any big termination payment made to an executive. The arrangements first proliferated during the hostile-takeover era of the 1980s and are most associated with what’s known as a change-in-control agreement, or a payout given to executives because of an acquisition. Such benefits were originally designed as a way to get executives to evaluate potential mergers that might be good for shareholders without worrying about losing their jobs – or the cushy paychecks that went with them.

But as stock grants ballooned in the 1990s and 2000s, the size of these first-class escape hatches grew enormously.

“Somewhere, that got distorted,” says Carol Bowie, head of Americas research for proxy adviser ISS.

Although Marcus’ potential payment is hefty, particularly given the short amount of time he’s held the job, it’s still dwarfed by what other CEOs could potentially receive.

For instance, David Simon, the chief executive of mall developer Simon Property Group, could receive $245 million if his company changes hands, according to the company’s proxy statement from last year. Meanwhile, the change in control payment for Discovery Communications chief executive David Zaslav, should that company be acquired and Zaslav lose his job, could reach $232 million.

Representatives for Simon Property Group and Discovery Communications declined to comment.

Because of the Dodd-Frank law, shareholders now have an opportunity to vote down lofty safety nets before an actual merger.

But it’s rare for a majority of investors to vote against these payouts, ISS’ Bowie says.

And even if they do, those “advisory” votes are non-binding, meaning that companies don’t have to follow through on shareholders’ recommendations.

Still, it does sometimes happen. Former Cooper Industries chief executive Kirk Hachigian, now chief executive of Jeld-Wen, was in line to receive a $79.3 million golden parachute as a result of his company’s acquisition by Eaton in 2012, according to an analysis by Equilar for the Washington Post. Cooper’s shareholders apparently weren’t big fans of the compensation – 59 percent of the company’s investors voted against the payment, according to a filing.