Executives will receive twice their normal pay plus bonuses if terminated.
PORTSMOUTH, N.H. (AP) – Tyco International adopted policies Friday limiting severance pay and creating stock holding requirements for executives.
The new policies come after shareholders unhappy with scandals involving the conglomerate’s top management passed a non-binding resolution in March to subject executive severance packages to a direct shareholder vote.
The new severance policy limits compensation to twice the executive’s base salary and bonuses at the time of termination. In a merger or “change-of-control” situation, departing executives would receive up to 2.99 times their base salary and bonus.
Supporters of the shareholder resolution on severance packages noted that former Tyco chairman Dennis Kozlowski, who has been charged with looting millions from the company, was promised a massive “golden parachute” that would have paid him about $135 million, plus a retainer of $3.4 million annually for the rest of his life. His voluntary resignation released Tyco from the terms of the agreement.
Management opposed the resolution, but promised to consider a new severance policy as part of its review of Tyco’s governance program.
“We have now fulfilled that commitment,” chief executive Ed Breen said in a statement. “We believe these policies further our goal of establishing clear and transparent standards for all aspects of Tyco’s management so that our investors know that we are acting on their behalf.”
Under the second policy, senior executives will be required to acquire and maintain certain levels of stock. Senior vice presidents will be required to hold twice their base pay in stock, while CEO Breen will be required to hold 10 times his base salary.
The goal is “ensuring that the interests of Tyco’s leadership and shareholders are completely aligned,” Breen said.
Prior to the board’s decision, Tyco had no official corporate policy on severance and no requirement for stock ownership by its senior management or board.
Based in Bermuda but with U.S. headquarters in Portsmouth, N.H., Tyco has numerous subsidiaries that make products from ADT alarms systems to coat hangers and telecommunications equipment. Tyco had sales of about $36 billion last year.
On the New York Stock Exchange, Tyco shares were up 9 cents to close at $18.87.
AP-ES-07-11-03 1737EDT
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