France and Germany can sometimes seem worlds apart. Peugeot's outgoing CEO Philippe Varin is waiving a euro 21 million pension pot after having steered Europe's second-largest carmaker through a life-threatening crisis. Siemens' former boss Peter Loescher is getting euro 17 million on top of an existing pension plan worth euro 14.7 million after he was ousted following a series of profit warnings. Both departures highlight that fairness in executive exits is a matter of judgment, not contracts.
In legal terms, Siemens cannot be blamed for Loescher's expensive farewell package. The German conglomerate acted by its internal rules, which cap the payout for a leaving top executive at twice annual pay. Loescher's base salary was euro 2 million, but he also received performance-based components worth euro 5.8 million in 2012. Still, while contractually due, the sum is inconsistent with a pay-for-performance philosophy given Siemens' mis-steps in the latter part of Loescher's tenure.
Loescher's expensive departure highlights fundamental problems of long-term employment contracts commonplace in the European corporate world - his was a five-year term.
Yet, the package that caused a public outcry - Varin's pension pot - wasn't as excessive as the headline sum of euro 21 million suggests. When Varin was poached from steelmaker Corus in 2009, he was promised an annual pension of euro 310,000 after taxes and social security contributions from the age of 65. This translates into a net payment of euro 7.8 million over 25 years. France's stellar income taxes and social security contributions drove the gross cost for Peugeot to euro 21 euros over the period. Varin, who earned a base salary of $1.3 million and has not received any bonus since 2010, will not get any severance payment when he steps down in 2014. He has said he will not take the pension in view of the company's changed circumstances. Varin was clearly under pressure, but his move is honourable all the same. The uproar in France over the arrangement risks deterring managers from taking difficult jobs at struggling companies. It is usually the most challenging corporate roles that require special incentives to lure a decent leader to the task. The lesson for boards and executives is that what is fair and appropriate compensation for loss of office will depend on the circumstances of the day. Negotiation and good judgment are probably better than rigid contracts in getting to the right outcome.
