It may seem insane and offensive that executives who preside over the meltdown of their companies get to walk away with millions. Let's see how that's allowed to happen:
A top dog's compensation and severance package is determined by the company board of directors, specifically its compensation unit.
Hal Lazarus, professor in the business school at Hofstra University, says board members are often chosen from the CEO's Rolodex - even after the Sarbanes-Oxley Act, which called for new board standards.
Some companies "do it the old way and do not see a high correlation between performance and compensation," he says.
Lazarus has served on 15 corporate boards and says he sees many local companies "behaving responsibly." But he says he sees the old-boys network still at play at companies that resist appointing outside board members, who might challenge the makeup of compensation deals.
He was among several board members dismissed many years ago and says he believes his dismissal was a result of his suggestions for more sound management practices and, in his role as chairman of the compensation committee, his questioning of the chief executive's compensation in relation to performance.
There is often "insufficient objectivity," he says, but board members don't necessarily OK a lucrative package out of friendship alone. In many cases, as leaders themselves, they empathize, thinking: "I've been in that position. I understand how terribly difficult it is to be an executive. And it is," says Lazarus.
Boards may also sign off on generous severance packages to attract a new chief brought in to turn a company around, says Tom McManus, a management consultant in Southampton. The newcomer is aware he is coming into a shaky situation, and his reputation and future earning power is at risk.
So he will often demand, and get, a golden parachute. Still, if improvement in executive accountability is on the horizon, McManus says, it's to be found in greater reliance on transparency, itself brought about by technology and globalization.
"It used to be easier for a company to commit a mistake and then hide it," says McManus. But with the freer flow of information, "they can't keep information as readily confidential as they could in the past."
Companies are also being prodded by institutional investors pressing for more data on executive pay and perks, he says.
Still, McManus and Lazarus say, some executives are worth every penny - because they create significant value.
McManus points to Lou Gerstner, who masterminded the major overhaul of IBM. "There's almost not enough money in the world to pay a guy like that," he says.
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