Inside Financial Services

The Fired-CEO Severance Scam–E-Trade Edition

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Let me see if I have this straight. E-Trade Financial fires CEO Steven Freiberg two years into his four-year contact after it becomes eminently clear that he’s not the man to fix the company’s seemingly endless mortgage problems, and Freiberg walks away with a $7 million severance payment? For what? Thanks for a job well done? Not if you take a look at E-Trade’s recent earnings history or stock chart. The company’s performance has been a disaster, and the job Freiberg did when he was CEO is presumably a key reason why. For this, he gets a fat severance. Crazy.

This habit corporate America has developed of giving fond-farewell packages to even its most incompetent CEOs is outrageous. As it is, Freiberg received $3 million in stock awards and $630,769 in salary for the job he did (badly) in 2012, along with a pro-rated bonus of $1.2 million and accelerated vesting of stock awards. Haven’t shareholders been soaked enough? What in the world is the extra $7 million for? E-Trade might argue that the dollar amount is immaterial, and that the deal (although I have no idea of its details) provides, say, a prohibition on any lawsuits by Freiberg, along with a promise of non-disparagement. I don’t buy that. If E-Trade is so afraid of what its former CEO might say about it in public, governance there is even sorrier than the company’s recent history suggests. And $7 million is a lot to pay to avoid litigation by a single disgruntled ex-employee.

Financials services companies have taken a lot of undeserved hits over the past few years. Given that, I’m amazed that there isn’t more outrage whenever a company, in financial services or not, makes one of these idiotic payouts to a failed executive. Dismiss it as an immaterial dollar amount if you want, automatic severance is simply an instance executive-suite pocket-lining-and with other people’s money, at that! As shady corporate practices go, this has to be among the worst.

What do you think? Let me know!

13 Responses to “The Fired-CEO Severance Scam–E-Trade Edition”

  1. Ckessler0948

    It’s the “members of the club” thing. Long ago when working at the Boston Company I saw this in practice when the failed President of Carling Brewery was made President of the Boston Safe Deposit & Trust Co. The only reason I could see for the hire was that he was a Harvard classmate of the Chairman of the Boston Co. Other than that he was a real dud.

  2. rivvir

    You got it. I’m just sorry you either took so long to get it or i missed you complaining about this endemic corporate disease before now. It’s been in place for quite a few years.

  3. Pat O'Brien

    I have never understood this common practice. Warren Buffett has countenanced this in companies he’s been involved with so I suppose it’s a hard trend to buck but I don’t know why. Was it part of that employment contract? Is it impossible to hire a manager without such a severance clause?

  4. DJ

    Reminds me of why our nation has flipped so far. We reward failure and mediocrity while calling common folks deadbeats and welfare kings/queens. Sadly the biggest subsets are the millionaire CEO’s who ax people then collect a payment after destroying accompany with poor leadership. You lose good people along the way and yet these guys go off into the sunset. If the average worker who knows a helluva lot more than many if these dumb dumbs was so rewarded especially during these tight times, maybe just maybe we we would develop internal leaders vs relying on hot shots who simply bring colorful power points, lay off 20% of staff, and talk Wall Street jargon with inexperienced and overpaid young MBA’s pushing their stock higher.

    We need leaders not managers. Manage failure and stay mid pack? That’s easy. Lead like a Jobs, Gates, Weil, Chenault, or Buffett? Well. That’s not so simple. I guess.

  5. Vegasjoe57

    Wonder f they will update the commercials showing the baby shitting all over himself as the CEO is walking out the door with all the loot?

  6. AP Paul

    “Dismiss it as an immaterial dollar amount”-is that not what we hear virtually all the time a CEO is fired? Same thing with Leo Apotheker, the former CEO of HP. How can failure be rewarded in such an egregious manner? Because companies can continue this behavior as long as there are compliant Boards of Directors- just follow the HP way- and voiceless shareholders, especially the large mutual fund and pension fund shareholders.

  7. Morgan's mom

    This type of pay-off has never made sense to me. Maybe the boards approve this because they’re all in the same club. The golden parachute club, their all worth it you know, it’s just when you’re a commoner like me you just can’t understand. Hmm, similar to government entities, local and federal.

  8. Al Davis

    Agree completely. The American Airlines CEO deal was just the same, and the company was in bankruptcy. this is what makes the lower-paid, less-fortunate workers hate the Republicans, and the Boards have no sense of responsibility.

  9. Uncle Sy

    I did business with the old Telebank years ago. That was a business that made sense, but never made real money. Then, the internet came along, they got and internet multiple, and they were bought by ETrade who was a hot company. Etrade didnt make money, but it didnt matter, because the internet boom was on. They cratered my business, by stopping lending to me and and dishonoring a contract. Soon, the Etrade guys were out, and the Telebank guys were running the show. They levered up, and bought all sorts of sub prime paper. Of course, that caused them to need to bring Citadel in to save them. I dont think the real trading business ever makes money, because:
    1) Margins are thin.
    2) Customer aquistion through ads is very costly.
    3) They compete with huge companies.

    Just a personal opinion, but I would also say that the CFO is an example of the Peter Principle on steroids.

  10. Tom brown

    Rivvir you kill me! I have been writing about this for 25 years.

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