The concept of deferred compensation is not new. Many higher-income people use it as a legal means of reducing their tax burdens. Now the Wall Street Journal reports on a new phenomenon which takes the idea much further. Some top executives have arranged for their heirs to receive large payouts if they die in office. These “golden coffins” are giving new meaning to the term “termination.”

Dozens of companies provide large death benefits to key executives. Many companies accelerate unvested stock awards after an executive’s death, a benefit that can total tens of millions of dollars. Some companies even offer a continuation of salaries or bonuses for years after the death of an executive. Although some companies have been offering these death benefits for years, a federal rule change 18 months ago required companies to state more clearly their financial obligations to top executives who end their employment under various circumstances.

Some top executives have arranged for their heirs to receive large payouts if they die in office.  For example, if Eugene Isenberg, who is 78 years of age and serves as chief executive of Nabors Industries Ltd., dies before he retires, company filings show that his estate would receive a severance payment of at least $263.3 million, more than Nabors’s earnings for the first quarter.
Not everyone thinks paying people after they’re gone is a good idea. Glenn Greenberg, a partner at Chieftain Capital, says of CEOs, “There’s no need to pay them more when they’re dead.”

June 17, 2008