Huge, glittering golden parachutes are apparently still alive and making outgoing executives very rich. According to published reports, Gillette Chairman and Chief Executive Officer James Kilts stands to earn more than $185 million after agreeing to sell the venerable razor company to Procter & Gamble for $57 billion.

Kilts

About $95 million of Kilts' cache is directly tied to the completion of the deal, according to The Wall Street Journal. This includes gains on his stock options and stock rights, a one-time sweetener from P&G valued at nearly $24 million, plus a "change in control" payment of $12.6 million, the paper noted.

Meanwhile, Charles "Chad" Gifford, who last year sold FleetBoston Financial Corp. to Bank of America, stands to receive a $16.4 million in cash, as much as $8.7 million in "incentive payments" for work done over the past 13 months, and $3.1 million a year for life, according to a published report. And if he dies before his wife, she will receive $2.3 million a year for the rest of her life.

Gifford also reportedly will receive $50,000 a year in consulting fees from the bank, 120 hours of free flight time annually on the company's jet and an office and a secretary, according to reports. And don’t overlook the fact that he reportedly accrued $38.4 million in company stock during his 38 years with Fleet.

Reining In Payments

These huge parachute packages, however, are in some ways an exception rather than the rule as companies feel more heat for agreeing to these deals. “I think it’s unusual,” says Julie Gresham, director of corporate governance for the New York State Common Retirement Fund.

In fact, Massachusetts officials are reportedly investigating Kilts’ package. Lawyers at the state's Securities Division last week fired off a letter to Gillette's top lawyer, Richard Willard, asking him to provide detailed financial information about the direct and indirect compensation.

A growing number of companies in recent years also have agreed to rein in these payments. One reason is that during the 1980s, the IRS imposed a 20 percent tax on all “parachute" payments that exceeded three times an executive's average annual compensation five years prior to the takeover.

A number of companies, however, have offered what are called "gross-ups," which are basically additional payments to cover the 20 percent tax when the parachute is popped after there is a change in control.

Other companies are agreeing to cut back on the total value of parachutes in response to a growing number of majority votes in related shareholder resolutions. “They probably did not change existing contracts,” points out Ginny Rosenbaum, research associate with the Investor Responsibility Research Center. “Sometimes they respond in a proxy statement if they received a majority vote or got another shareholder proposal.”

A number of companies have agreed to get shareholder approval if they exceed 2.99 times annual compensation of base salary plus bonus, including Alcoa, CSX, Corning, Delta Air Lines, McKesson, Norfolk Southern, Verizon Communications, according to Rosenbaum.

In late January, CSX enacted the change after a non-binding proposal brought by the Amalgamated Bank’s LongView Funds received 73 percent of the yes-and-no votes cast in 2004, according to the bank. A total of seven companies have adopted similar provisions in response to LongView’s proposals, including Norfolk Southern in 2002 and Union Pacific in 2003, as well as Corning, NSTAR, AK Steel and Sprint.

Activism Increasing

“There has been a decided movement in favor of giving shareholders a vote on large parachute packages,” says Con Hitchcock, legal counsel for the LongView Funds. “There have been greater acceptances than there were three to four years ago.”

For example, in 2004 there were a total of 36 shareholder resolutions submitted, 26 of which were voted upon, according to the IRRC. Altogether, 16 of the measures received a majority vote, and the average resolution generated 51.8 percent approval among those who voted.

Already, another 35 resolutions have been filed this year. The Bricklayers’ pension funds, for example, have submitted a number of resolutions calling for a shareholder vote on future golden parachutes that provide benefits in an amount exceeding 2.99 times the sum of the executive’s base salary plus bonus. These proposals were submitted to Best Buy, Office Max (formerly Boise Cascade), Cendant, ChevronTexaco, Circuit City Stores, CVS, Hilton Hotels, Home Depot and Starwood Hotels & Resorts Worldwide.

Funds affiliated with the Service Employees’ International Union have refiled a severance proposal at three companies where similar proposals had passed in 2004, according to the IRRC. They include at Archstone-Smith Trust, where 62.9 percent of the votes cast supported the proposal; at Arden Realty, where 76.8 percent of those voting supported the proposal; and at Brandywine Realty Trust where 74.6 percent of the votes cast supported the proposal.

The IRRC points out that this year the AFL-CIO slightly revised its golden parachute proposal. The current version seeks shareholder approval for severance agreements with senior executives that provide benefits in an amount exceeding 2.99 times the sum of the executive's average W-2 compensation over the preceding five years. “This tracks the IRS definition of ‘an excess golden parachute,’ which has tax implications for both the executives involved and for the companies,” the IRRC points out. The proposal has been filed at Kohl’s and Waste Management.

And the Teamsters submitted similar proposals to Coca-Cola and Coca-Cola Enterprises.

“A lot of companies see the hand-writing on the wall,” Amalgamated’s Hitchcock asserts. “It is pretty clear a pattern is emerging.”

Double Trigger

“This is another of growing list of cracks we've been seeing in the wall that used to keep shareholders totally removed from executive pay decisions,” points out Carol Bowie, director of governance research for the IRRC. “That was left to the board/compensation committee. Now, as a result of the perceived failure of those bodies to adequately protect investor interests, we are seeing more companies agree to abide by shareholder requests such as this, as well as agreeing to use more performance-based compensation and expense stock options, to name two others. It's not an avalanche but the dike has been breached, and activist investors seem determined to keep up the pressure on these issues.”

Meanwhile, the number of people who are getting these kinds of employment contracts is coming down, according to Jan Koors, managing director of compensation specialist Pearl Meyer.

What’s more, those who receive these change-of-control provisions are finding it more difficult to earn that big pay-day. This is because a growing number of companies are moving to what Koors calls “double-trigger” vesting.

In the past, just a single event—the change in control—triggered the event. Now, the executive must actually lose his job from the transaction to see their parachute open up, Koors adds.

Proxy voting firm Institutional Shareholder Services supports the double-trigger. “Golden parachutes do provide some benefit to shareholders,” said a recent report by the firm. “Studies have found that parachute arrangements prompt target boards to more carefully consider takeover bids and tend to result in higher takeover offers, which lead to greater returns for shareholders of target companies.”

In general, however, Koors at Pearl Meyer warns that change in this area is a slow process. But, she adds, “Overall shareholder activism and scrutiny by shareholders and watchdogs is impacting how boards and compensation committees look at these things and are sensitive to how they appear in the marketplace.”

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