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New GM CFO Chris Liddell gets paid coming and going.
Alix Stuart, CFO.com | US
February 11, 2010
Chris Liddell made out well at both ends of his recent job transition from CFO of Microsoft to the same post at General Motors. Besides getting a boost to his base salary — $750,000 at GM, up from $561,667 in 2009 at Microsoft — Liddell also received from Microsoft a parting gift of $1.9 million. The sum, to be paid in two equal installments on December 31, 2009, and March 31, 2010, comes in exchange for promising not to sue or otherwise disparage Microsoft after his departure, the tech giant recently disclosed in its most recent quarterly filing with the Securities and Exchange Commission.
Such payouts are often written into employment contracts at the outset of a CFO's tenure as protection from the career risks of making big gambles on corporate strategy. But some experts say Liddell's was out of the ordinary since he did not have an employment contract or other explicit promise of such a sum. In fact, Microsoft's most recent proxy, filed at the end of September, claims its top executives "are not entitled to any payments upon termination of their employment or following a change of control of Microsoft" except under certain conditions that did not apply to Liddell. (Speaking through a GM spokesperson, Liddell said he would have no comment.)
The amount — about 3.4 times Liddell's base salary — is also notable. For CEOs, whose exit packages are usually considerably richer than those of CFOs, most Fortune 100 companies now offer two or less times base salary for severance, according to a recent study by executive-compensation research firm Equilar. In 2008, the most recent year available, only 10.5% of those with such a provision offered a cash multiple of three times or greater.
"It's unusual for a company to offer this postemployment, and it's even more unusual for the amount to be that high, which leads me to believe it's some sort of quid pro quo," says Thomas Lys, an accounting professor at Northwestern's Kellogg School of Management who has studied CEO severance packages.
While that raises questions about why Liddell might have left Microsoft after four and a half years there, at least part of the "quo" is spelled out in the extremely detailed resignation letter Liddell signed, also filed with the SEC.
The letter contained all the standard promises, such as that Liddell would not sue or disparage the company or disclose any of its secrets, but with some language that is highly specific for such contracts.
Among the promises Liddell made back in November, before his new job was announced, was that "if asked about my departure from Microsoft, I will respond only that 'I have resigned to pursue other opportunities.'" He also agreed to "not blog or otherwise author in any manner any online or printed publications or writings (including but not limited to any blog, posting, article, or book) or participate in any interviews, broadcasts, podcasts, or similar audio interviews about Microsoft or its officers relating to any information or data considered confidential or proprietary." Finally, Liddell said that if he ultimately does breach his promise to not disparage or leak confidential information, Microsoft would be entitled to "either the sum of $285,000 as liquidated damages, or actual damages" plus attorneys' fees.
Most contracts "usually keep the language broad," says Forbes Sargent, a partner at Boston-based Sherin & Lodgen who specializes in employment law. However, given Microsoft's prominence, and the technological savvy that undergirds it, Sargent says some of the specificity, particularly the elaboration of blogs and podcasts as modes of prohibited communication, is understandable. "It's taking a traditional concern of a company about confidentiality to a new level," he says. "And even if a CFO is unlikely to cross such lines, it's probably a good idea to remind other employees."
In general, such agreements are effective at quelling any further problems, says Alan Johnson, head of Johnson & Associates in New York. "Usually the CFO of a big company is extraordinarily well treated, so it's not like he could say, 'I didn't get promoted' or 'I didn't get paid enough,'" he says. "Many of the complaints other people could conceivably have it would be difficult for [a CFO] to get much traction with."