How does compensation interact with reputation? Let me count the millions of ways. The calculus of reputational damage can be more intertwined than we account for in our current severance agreements. Recent news articles have discussed comments by Yahoo’s departing CEO, Carol Bartz. Famously, or infamously, she declared in a media interview that she disagreed with her termination and felt that perhaps the company had not been completely fair. You can read the far more strongly worded comments here. During this same interview, she also resorted to a little playground-level name-calling when discussing Yahoo’s Board.
We’ve all walked away from a company that wouldn’t listen to us. Maybe the company missed targets, or made clients angry, or utilized ineffective compensation programs as a result of ignoring the amazing insights we provided. We walked out the front door and silently thought, “If only people knew how dysfunctional that place was.” Then we thought of a few other things: 1. The amount of severance pay we may lose if we chirped about the place; 2. The difficulty of getting hired in an industry where you are known as public complainer or, even worse, oath breaker; 3) The fact that all the complaining in the world won’t put food on the table. Then, we shut up and moved on to our next position.
After the initial press barage it was subsequently reported that Ms. Bartz, like most executives (and many non-executives), has a non-disparagement clause in her contract. In other words, she may be in breach of her separation agreement as a result of a few words. It has also been reported that her separation package is valued at around $10,000,000 (that’s right $10 MILLION.) Given that figure, and the fact that Ms. Bartz’s negative comments may have been less than 10 words; we are talking about $1M a word!
Maybe she can afford it. Carol Bartz made somewhere in the range of $50-60M over the past two or three years. $10M won’t bankrupt her, but it isn’t chump change either! She is a smart professional and likely understood the impact to the company and the potential impact to herself when those comments were made. Either she is willing to risk the severance pay, or she believes the company won’t stop payment on a pretty big check.
But, here’s the issue. If the company decides not to pay her severance, aren’t they also admitting that they no longer have any control over future comments? Would this new freedom result in far stronger, or more detailed, comments that can put the company into an even worse light? Is a better corporate strategy to publicly say nothing, but privately remind her that future negative statements will result in the cancellation of payment?
Some say that a contract is a contract and any further payments would not be in the best interest of the company, or its shareholders. Others say that rigid adherence may be trumped by discretion if it can lead to less risk and exposure for the company. Either way, our compensation playbook is typically not designed to address this type of situation well.
If a company makes it a strict practice to withhold pay after a disparaging remark, then it must understand the risk of an ex-executive continuing to speak their minds after the payment has been revoked. If a company is willing to let one comment slide unpunished, are they also willing to let three comments slide? How about six?
Of course, our exit interviews need to reiterate the rules around severance pay, but perhaps we are missing a crucial risk management component. Maybe we need to make an effort to calculate the potential cost of an executive speaking out of turn. Maybe we need to simply ask executives, “How much will it take to keep your mouth shut?” If the amount is less than the payment planned, we are fine. If not, we have some interesting reputational calculus to work on.
How would you deal with a situation like that faced by Yahoo? Revoke, Pay or something more creative?