When Jeff Smisek stepped down as United’s chief executive earlier this week amid a federal corruption probe, he didn't walk away empty handed. He will receive at least $21 million in cash and stock, fly free for the rest of his life and keep his company car.
Then there is the parking.
He can park free in downtown Chicago and at airports in Houston and Chicago — for the rest of his life.
The full value of Smisek’s exit package could be even higher — he’s still eligible for the incentive pay that accumulated before his resignation. In all, Bloomberg estimates he will walk away with $28.6 million. That’s more than double Smisek’s pay last year, which reached $12.8 million.
Valuable CEO severance packages are common, compensation experts say, even if Smisek's circumstances are unique. Smisek’s resignation was tied to a federal investigation into whether the air carrier launched a money-losing flight from Newark to Columbia, S.C., to benefit the influential then-chairman of the Port Authority of New York and New Jersey, who owned a vacation home near Columbia. Smisek’s tenure was also pockmarked by technical glitches that briefly grounded United's fleet earlier this year and a difficult merger with Continental.
“This is very, very typical,” said Charles Elson, chair of the University of Delaware’s Weinberg Center for Corporate Governance.
Less typical: Smisek's non-cash compensation, including the company car, health insurance and the lifetime of free flights (and companion tickets), compensation experts say. United is even picking up the tax bill for the free flights, which the company has estimated could come to more than $437,000.
United spokesman Luke Punzenberger said the company would not comment beyond what it submitted in its Securities and Exchange Commission filings.
The deal has drawn criticism from the Association of Flight Attendants, which represents United workers.
"From the worker's perspective, it's obviously a different mentality," said Molly Sheerer, a spokeswoman for the union, which is in the midst of contract negotiations with the airline. "We believe there's something wrong when an executive is awarded over $25 million for failing to do his job."
In recent years, other chief executives have made big money stepping away. When Edward Breen left Tyco in 2012, for example, he walked away with $42.4 million in cash and stock, nearly double what Smisek did, according to Equilar. When Ivan Seidenberg left Verizon in 2011, he pocketed $39.7 million.
But those CEOs didn't walk away under the cloud that marks Smisek’s departure, reflecting how difficult it can be to puncture holes in such deals.
United can rescind the deal but only if Smisek doesn't cooperate with the company or is convicted of a felony or a “crime involving moral turpitude," according to the agreement.
“The way that CEO employment agreements are written, you really have to commit a felony before they can fire you and not pay you anything,” said Paul Hodgson, a partner at BHJ Partners, a compensation research firm. “Just being bad at your job or immoral or unethical or whatever is not enough usually.”
That is partly because exit packages are usually negotiated when a CEO is hired and feelings are rosier, not when they are preparing to leave and sentiment may have soured. The headline-grabbing, multi-million dollar payouts are more a bargaining chip than a performance review.
Severance deals are like prenuptial agreements, said Elson from the University of Delaware. No one negotiates one expecting things to end badly.
“It’s like looking at the stars. The light you see was produced many years before,” Elson said. “That package was negotiated when he came in.”
Long seen as necessary to lure top talent, severance packages have fallen out of favor in recent years, researchers say. Public backlash and shareholder complaints have helped to cut down on the number of exit payouts companies offer, they say.
Young Silicon Valley companies have largely rejected them, said Hodgson, from the compensation firm. That, he says, has chipped away at their appeal in all boardrooms.
“If you can hire one CEO without an employment agreement, you can hire all of them without an employment agreement,” Hodgson said.