Companies Promise CEOs Lavish Posthumous Paydays
Options Vest, Insurance Flows; Even Salaries May Continue
By Mark Maremont
The Wall Street Journal
Tuesday, June 10, 2008
You still can't take it with you. But some executives have
arranged for the next best thing: huge corporate payouts
to their heirs if they die in office.
Take Eugene Isenberg, the 78-year-old chief executive of Nabors
Industries Ltd. If Mr. Isenberg died tomorrow, Nabors
would owe his estate a "severance" payment of at least $263.6
million, company filings show. That's more than the
first-quarter earnings at the Houston oil-service
Dozens of other companies offer lush death-benefit packages to
their top executives, according to a Wall Street Journal review
of federal filings. Many companies accelerate unvested
stock awards after a death, which by itself can amount to tens
of millions of dollars. Some promise giant posthumous
severance payouts, supercharged pensions or even a continuation
of executives' salaries or bonuses for years after they're dead.
The CEO of Shaw Group Inc. is in line to be paid $17 million for
not competing with the engineering and construction company
after he dies.
Lockheed Martin Corp.'s top officer didn't even need to die to
get a death benefit; Lockheed paid out the sum, about $1
million, in March while he was still very much alive.
Death benefits, sometimes called golden coffins, have been
around for years, but until recently the amounts were often
impossible to determine or were shrouded in the fog of
proxy-statement language. A federal rule change 18 months
ago required companies to be clearer about what they're obliged
to pay if top executives end their employment, under various
A death of a CEO or chairman often is a traumatic event, both
for the family and for the suddenly leaderless company.
But compensation critics say that's no reason to lose sight of
the pay-for-performance principle that many boards now espouse.
And they call death benefits the ultimate in pay that isn't
based on performance.
Companies defend the practice as an appropriate way to take care
of an executive's family after an unexpected death. They
also note that the benefits often are negotiated as part of a
pay package that has many components. In many cases,
compensation attorneys say, death benefits are really a form of
deferred compensation, structured partly for estate-planning or
Companies often say one goal of their pay packages is to keep
executives from leaving. But "if the executive is dead,
you're certainly not retaining them," says Steven Hall, an
executive-pay consultant in New York.
Mr. Hall says death benefits have become more controversial in
recent years: "Shareholders say, 'Why should we write a big
check to a CEO who's been quite well paid all along?' He
should have bought life insurance."
At many companies, a top executive's death does trigger a big
insurance payout to heirs -- on a policy the company paid for.
A $3 million life insurance policy is just a minor part of the
death benefits that XTO Energy Inc. provides to its CEO, Bob R.
Had Mr. Simpson died on Dec. 31, according to the natural-gas
producer's latest proxy statement, XTO would have owed his heirs
a $111 million "bonus." Stock options that the 59-year-old
executive had been granted, but that weren't yet vested, would
immediately vest, bringing his heirs an additional $20.5
The Fort Worth, Texas, company also would have owed $4.4
million in salary for its deceased employee. And his death
would trigger a $158,400 payment listed as a "car allowance."
A spokesman for XTO didn't return calls seeking comment.
A salary-after-death provision has just been scrapped at Comcast
Corp. The board in late December had renewed a provision
that gave Ralph J. Roberts, the 88-year-old chairman of its
executive committee, his $2 million annual salary for five years
after his death. But in February, Comcast canceled the
deal amid criticism from a big shareholder, Chieftain Capital
Management. David Cohen, a Comcast executive vice
president, said Mr. Roberts voluntarily relinquished the
benefit, in a move that had been under consideration for some
Still, as of Dec. 31, Mr. Roberts was entitled to an estimated
$87 million in posthumous benefits from the Philadelphia-based
cable-television company. Most of it consisted of
continued company funding of joint life insurance covering him
and his wife, filings show. The insurance would pay a
total of $130 million to their estates after both are deceased.
Salary Keeps Coming
Comcast is still committed to paying the salary of Mr. Roberts's
son, CEO Brian L. Roberts, for five years after his death in
office, along with his bonus for five years. The potential
payout was valued at more than $60 million on Dec. 31.
The 48-year-old CEO's heirs would also receive $223 million from
his company-funded life insurance. And the heirs would be
entitled to an acceleration of stock awards and other payments,
which would have totaled $14 million had he died on the last day
"We think the compensation has been grossly too high already" at
Comcast, said Glenn Greenberg, a partner at Chieftain Capital.
"There's no need to pay them more when they're dead."
Chieftain has been seeking the ouster of the younger Mr. Roberts
and the end of a two-tier stock arrangement that gives the
Roberts family voting power beyond the number of shares it
Comcast's Mr. Cohen called the five years of postmortem salary
and bonus for the chief executive "fair and reasonable."
He noted that many large companies offer death benefits.
As for the large company-funded life-insurance policies, Mr.
Cohen said the burden of making the payout would fall on an
insurer, not Comcast. He said part of the CEO's life
insurance is term insurance Comcast bought at favorable rates,
and that the company discloses this insurance's annual $415,000
cost to Comcast in yearly pay tables.
Pay consultants trace one of the earliest golden coffins to
Armand Hammer of Occidential Petroleum Corp. His contract
called for his salary to be paid until his 99th year, whether he
was alive or dead. He died at 92 in 1990.
Another early beneficiary was Steven J. Ross, the late chairman
and co-CEO of Time Warner Inc., who died in 1992 at age 65.
His contract called for the company to pay his salary and bonus
for three years after his death. It also gave his heirs
nine years to exercise stock options on 7.2 million shares, a
package estimated at the time of death to be worth between $75
million and $300 million.
Today, most public companies include death benefits with other
types of termination-related pay due their CEOs, with variations
for whether the person is fired, becomes disabled or dies in
office. Death benefits are layered on top of pensions,
vested stock awards and deferred compensation, which for most
CEOs already amount to large sums.
Rupert Murdoch, the 77-year-old chairman and CEO of News Corp.,
parent of Dow Jones & Co., which publishes The Wall Street
Journal, doesn't have an employment contract. News Corp.
filings show that on June 30, his death would have triggered
$1.37 million in payments to his beneficiaries. The
beneficiaries of News Corp.'s 57-year-old president, Peter
Chernin, would have been entitled to a $5 million payout of
company-funded life insurance plus $31.9 million in acceleration
of equity awards and other benefits had he died June 30. A
spokeswoman for News Corp. confirmed the numbers and declined
A recent study of 93 big companies found that 17% offered
severance-style death benefits to their chief executives in
2006, while 40% provided corporate-funded life insurance.
Equilar Inc., a research firm in Redwood Shores, Calif.,
did the study.
CEO deaths, though uncommon, do happen. McDonald's Corp.
faced two in nine months. James Cantalupo died suddenly in
April 2004 at age 60. The board awarded him a $1.8 million
"discretionary bonus" and waived other rules to give his estate
an early $790,000 payout of a long-term award.
His 43-year-old successor, Charles Bell, had cancer surgery just
two weeks after taking over and was gravely ill for part of his
brief tenure. He stepped down after seven months and died
two months after that. The company then gave his estate a
$3.2 million bonus.
Vesting Upon Death
Though not all companies provide it, the most common posthumous
benefit is acceleration of unvested stock options and grants of
restricted stock. The rationale is that if the executive
hadn't died, he or she would probably have stayed long enough
for the awards to vest.
At Occidental Petroleum, the successor to Mr. Hammer, Ray R.
Irani, would get immediate vesting of all of his options,
restricted stock and performance-related awards if he died on
the job. It's a benefit Occidental's filings said was
worth $101.9 million as of Dec. 31.
A spokesman for the company said that amount "isn't a death
benefit per se -- it's what his family would get upon his
death." The spokesman, Richard Kline, added that the only
reason the unvested awards are so valuable is the stock's superb
performance under Dr. Irani's leadership.
The CEO is already wealthy. Dr. Irani has earned more than
$700 million from Occidental since 1992, including profits on
stock-option exercises, according to Standard & Poor's ExecuComp.
Multiple Stock Awards
An unusual death provision appears in the contract of the CEO of
Plains Exploration & Production Co., James C. Flores. If
he dies in office, his heirs get a giant payout from
restricted-stock awards that Mr. Flores hasn't yet been granted.
The board of the
oil-and-gas concern has promised Mr. Flores annual grants of
300,000 shares of restricted stock through 2015, as part of a
"long-term retention and deferral agreement." Had he died
at the end of last year, company filings say, his estate would
have been entitled to seven future years of stock awards -- 2.1
million shares then valued at $113 million -- all of which would
His death on Dec. 31 also would have triggered $53 million in
additional benefits, mostly from acceleration of already granted
awards that hadn't yet vested.
In an interview, Mr. Flores said he cut the restricted-stock
deal when Plains stock was about one-eighth its current price,
when "it wasn't that much money." He also said his years
of promised restricted-share grants provide a continuing
incentive for him to focus on the company's stock price.
"It's a retention clause. It allows me to work and earn it
every year," he said.
An Early Payment
At Lockheed Martin, the company recently eliminated a
"post-retirement death benefit" for top executives but gave the
executives the money anyhow. For its 56-year-old CEO,
Robert J. Stevens, that meant an extra $1 million payment in
A spokesman for Lockheed Martin, Jeffery Adams, said the company
canceled the plan as part of a broader effort to eliminate
"nonperformance-based compensation programs." As to why it
paid out the death benefit to a still-living executive, Mr.
Adams said Lockheed "thought it was appropriate to compensate
officers who would have otherwise expected to be eligible for
the benefit following retirement."
As of the end of last year, the Lockheed CEO was eligible for an
additional $48 million in death benefits, from acceleration of
stock awards and long-term incentive plans, Lockheed filings
Companies often have "noncompete" agreements with top executives
that bar them from joining a competitor after they leave.
Shaw Group has one. The
La., company would pay $17 million
to CEO James M. Bernhard Jr. "not to compete with us for a
two-year period following termination of employment," its latest
proxy statement says.
The pay for not competing would still be due if Mr. Bernhard
were dead, a footnote shows. Shaw officials didn't respond
to requests for comment.
At Nabors, Mr. Isenberg, who is chairman as well as CEO, has
long been one of the highest-paid executives in the U.S. His compensation from
1992 to the end of last year totaled more than $500 million,
according to company filings and Standard & Poor's ExecuComp.
The oil-service company reported first-quarter net income of
$230.5 million -- or less than the severance payment Mr.
Isenberg would have been due had he died in office Dec. 31.
Nabors, which is registered in Bermuda but has headquarters in
Houston, has a market value of about
The death payout "is a great present to his estate, but it would
be very costly to shareholders and it would be a big hit to the
company's balance sheet," said Richard Ferlauto of the American
Federation of State, County and Municipal Employees, where he is
director of corporate governance and pension investment.
Mr. Ferlauto's union backed a shareholder proposal to rein in
another executive-pay benefit at Nabors, which was defeated at
the company's annual meeting a week ago.
A spokesman for Nabors, Denny Smith, said the size of Mr.
Isenberg's death benefit has grown because, under his employment
contract, it is linked to the company's performance.
Strong cash flow and earnings in 2006 resulted in a substantial
increase in the benefit, he said.
The size of Mr. Isenberg's severance benefit has contributed to
boardroom tensions in recent years, according to people familiar
with the situation. They say directors have tried to
renegotiate the package but haven't been able to come to an
agreement with Mr. Isenberg.
The Nabors spokesman, Mr. Smith, denied there is any friction on
the board. He said directors and executives are "actively
working to restructure" the contract and hope to reach an
accommodation that is in the best interests of shareholders.
Write to Mark Maremont at