Home Depot, the world's largest home improvement store chain, announced on Wednesday that its board would need approval of two-thirds of its independent directors before finalising a compensation package for the company's chief executive.
The decision is significant as it follows a week after former CEO Bob Nardelli walked away with a $210 million severance package. The "golden parachute" for Nardelli led to a huge shareholder uproar as it was seven times the $30 million that Home Depot set aside last June for its 2,127 stores and 355,000 employees.
HR experts say it won't be long before shareholders wake up to another practice companies all over the world are resorting to in their bid to lure top talent to the corner office. Known as a "golden hello," it involves making huge payments and perks to lure not only chief executives but every member of the executive suite.
These payments are intended to make the executive "whole" - to treat him as if his career had no costly interruptions - by giving him any bonuses, stock options and pension benefits he would have to abandon by leaving his previous employer.
Some CEO candidates are in fact also demanding that companies make up losses they may face from the sale of their houses if they relocate, or that they receive price protection on losses they might incur in the stock they own in the company they are leaving.
Take Mark V Hurd, who took over as chief executive of Hewlett-Packard after the exit of Carly Fiorina. Hurd received cash, stock and perks worth at least $20 million for simply walking in the door at the company's California headquarters. The use of such golden hellos is not new, but lawyers representing Hurd at the negotiating table came up with quirky ways to make their client "whole".
For instance, the terms of the golden hello package for Hurd also stated that there will be "no limit on the weight of household goods" he chooses to ship to California. The package has also been criticised severely as the agreement included provisions under which certain performance targets for 2005 and 2006 will be deemed as already achieved.
Hewlett-Packard, of course, is far from alone in offering such a sumptuous welcome package. Honeywell CEO David M Cote received a golden hello valued at close to $60 million much earlier.
There are some others like Brian Gilbertson, the ex-chairman of Anil Agarwal-controlled Vedanta, who have made merry with both golden parachutes and golden hellos. Gilbertson, whose daily arrival by a private helicopter on the roof of Billiton's Johannesburg headquarters attracted quite a few snide comments, was sacked by the Billiton board only after a huge pay-off and accrued pension benefits.
So large was the payout that it attracted an official complaint from the Australian government, which tried unsuccessfully to have them blocked.
Within a few months after the golden parachute, Gilbertson received a pound 7million golden hello from Vedanta, which was planning a float in the UK. The association lasted a little more than six months, as Gilbertson keenly responded to another "hello" from Russia's leading aluminium producer, Sual.
Experts say that such one-time bonus-triggered job-hopping can be stopped by using the "claw back" system of payments. Under this system, employers stagger the bonus by paying only a part at signing and the remaining at the end of six months to a year. The payment can also be made in a specified number of equal instalments, with a provision that a new recruit cannot leave the organisation before a specified period of employment expires, or will have to return part/full amount of the bonus if he does so.
Given the huge talent shortage, golden hellos are not restricted to corner offices alone and have trickled down to the top B-schools also. While no data is available on Indian business schools, students from the London Business School topped the sign-on bonus chart by averaging $23,500, followed by IMD at $20,000 and Harvard at $15,000.
The reason why golden hellos are often criticised is that the whole rationale for giving larger bonuses and payouts to executives is that their total pay package is supposed to be riskier than that of the average worker.
Executive search specialists, however, say despite some aberrations, golden hello-type packages are here to stay. The talent shortage in India, for example, is so severe now that only one in three vacant top-level slots can be filled. Even the time taken to fill senior positions has doubled to 120 days.
Take Cairn India, for instance. The company was desperately looking for somebody to take charge of its India operations for quite sometime. Finally, when it managed to rope in Rahul Dhir, a top-notch investment banker based in London, the golden hello of Rs 100 crore (Rs 1 billion) stock options - two-thirds of which come without any performance conditions attached - didn't seem too high a price.