Corporations tend to announce, loudly, that they have so-called "clawback" policies in place. This is intended to reassure shareholders since the purpose of clawback policies is to "claw back" payments made by the corporation to corporate officers who have allegedly done bad things for which the corporation has paid penalties with corporate money, when the corporation also pays the alleged miscreants with corporate money that would otherwise go to benefit the shareholders. Clawbacks have been addressed here several times in the past.
"But saying and doing are two different things," reports Gretchen Morgenson in "How Badly Must a C.E.O. Behave Before His Pay is Clawed Back?" (New York Times Online, posted on Friday, June 9, 2017, accessible at https://nyti.ms/2s5xwdJ; subscription may be required by the New York Times). United Airlines provides the example of the day.
One Smisek was United's CEO who approved a money-losing route from Newark Airport so that a politician could fly to his second home in South Carolina. The day after Smisek approved the route (allegedly surreptitiously), the Port Authority headed by the politician approved one of United's projects at Newark Airport.
The Department of Justice investigated. United made a "nonprosecution agreement" and paid $2.25 million in penalties and a further amount of unreported sums "to enhance its ethics and compliance procedures."
The Securities and Exchange Commission also investigated United's silent award of a money-losing airline for one person in this case. United paid $2.4 million to the SEC.
After United was served with grand jury subpoenas by the U.S. Attorney's Office for New Jersey, United's directors decided to terminate Mr. Smisek's relationship. They gave him a severance package worth $28.6 Million. The cash in that payment was some $5 Million.
The City of Tamarac, Florida's Firefighters Pension Trust Fund was and apparently still is a United shareholder. They asked United's directors to claw back the corporate money they paid to several United officers including Smisek, but the directors refused.
United's directors say that they cannot claw back this money because no-one claws back payments made with corporate money.
They contend that "clawing back severance awarded to executives amid a bribery investigation is not industry practice," Ms. Morgenson reports. And in a truly Orwellian twist, the directors defend themselves for not clawing back the payments by saying that if they did something that is different from the industry standard, then they would be at a disadvantage in hiring executives.
Who knew that United's directors are a dance team, doing the Shameless Shuffle? Like everyone else in charge at United, they know how to make a buck though.
But if you are a United shareholder, the buck comes out of your pocket, apparently, based on Ms. Morgenson's outstanding reporting.
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