Filed under: Management, Scandals

Of all the egregious executive pay situations out there, the most offensive has to be the huge severance packages handed out to executives who were miserable failures.

Case in point: Former E*Trade (NASDAQ: ETFC) CEO, Mitchell Caplan, who stepped down as CEO after the company reported massive losses on subprime loans it had no business speculating in, will receive $10.9 million in severance pay — two times his 2006 base salary and bonus.

How could he possibly deserve it? The stock is down to around $3.50 from its 52-week high of $26.08, and it’s all because of horrible investments the company made. The CEO should be responsible for those mistakes.

In addition, Caplan’s severance package and bonus in 2006 were in all probability inflated as the company had not yet marked down its subprime loans. Exorbitant severance packages combined with big options and restricted stock packages induce executives to take unwise risks with shareholder capital. The ability to reap huge windfalls from gambles that pay off and the huge pay these guys receive when they fail, leads to a decision making process that goes something like this: “Heads, I win and my options are worth millions; tails, I lose and I get $10.9 million and I don’t have to work anymore.”

Executive pay structures that reward failure threaten the future of our economy. E*Trade shareholders should be demanding the resignation of the entire board of directors that approved this parody of capitalism.

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This entry was posted on Thursday, January 3rd, 2008 at 9:43 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.