Golden Hellos, the Latest CEO Compensation Practice to Come Under Fire

For years corporate boards have used so-called golden handcuffs (retention incentives) to keep treasured chief executive officers in the fold or provided golden parachutes (severance packages) to ease their departures. Lately, another gilded pay practice has taken hold: golden hellos, or multimillion-dollar signing bonuses used to get CEO candidates to join the team. The number of U.S. companies in the Russell 3000 Index and Canadian ones in the S&P/TSX 60 Index making upfront payments to executives has risen to more than 70 this year, from 41 in all of 2012, according to governance advisory firm GMI Ratings. Among this year’s biggest: Zynga’s $45 million package to attract game industry veteran Don Mattrick.

Yet high-profile flameouts such as Ron Johnson show that such tactics can quickly lose their glitter—at least for shareholders. J. C. Penney fired CEO Johnson in April, 17 months after giving him a signing bonus of $52.7 million in shares to recruit him from Apple. “Investors should be skeptical of golden hellos, which represent pay decoupled from performance and provide no retention incentives,” says Lucian Bebchuk, a Harvard Law School professor who has studied CEO pay.