Why did ousted Yahoo executive get $58 million in severance?

A reason sometimes cited for high executive pay is that those corporate bigwigs take on more risk than the rank-and-file. Much of their pay is tied to stock awards, with the idea being that if the company struggles under their leadership, so will their compensation.

But the case of ousted Yahoo (YHOO) executive Henrique de Castro, who is taking home $58 million -- one of the most generous severance packages ever -- raises questions about what exactly is on the line. It seems de Castro was promised a sweet deal, no matter what.

In the case of de Castro, described by Kara Swisher of re/code as a "dead man walking," even Yahoo seems distressed by the turn of events, based on a regulatory filing on Wednesday. De Castro, the former chief operating officer, the filing notes, was given no bonus in 2013 because the compensation committee "believed he did not meet the performance standards necessary to receive an annual bonus." It added that when Yahoo hired de Castro, it "believed" he had skills that would help the company's long-term success.

Yahoo didn't immediately return a request for comment.

So what went wrong? How can a fired executive stroll out the door with a king's fortune?

The issue comes down to how executives negotiate contracts when they are hired at a new company, with such deals becoming standard among those in the executive suite. One thought in support of the severance packages is that without them, an executive might not want to sell her business to another company, given she could forfeit her salary and future earnings.

But de Castro's massive windfall is likely to prompt more questions about the fairness of such packages. After all, he only served for 15 months, and by Yahoo's own account provided subpar performance. His severance pay is largely linked to his stock and options, which gained in value thanks to Yahoo's rising stock price.

De Castro's golden parachute is by no means the most egregious, either. Take a look at Robert D. Marcus, the chief executive of Time Warner Cable. He stands to receive $80 million in severance pay if Comcast's deal to buy his company is completed. How much time did he toil at the top of the pay-cable operator to earn that severance? Six weeks.

Marcus' severance pay was defended by Time Warner Cable chief financial officer Arthur Minson, who will receive $27 million in severance, in a congressional hearing earlier this month about the proposed merger with Comcast.

"As it relates to the overall compensation packages, I would say for transactions this size and for transactions this complex, I think you'll find that they're in line," Minson said.

"You may find that not all consumers agree," responded Senator Patrick Leahy, D.-Vermont.

Such rich packages may seem galling to Americans, who themselves aren't taking home big income gains. In fact, median household income is actually less than it was in 1989.

The lesson from de Castro's golden parachute? If you want a risk-free, high-paying job, just head for the corporate suite.

  • Aimee Picchi

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