Just following the wizard’s advice…

December 13, 2007

images3.jpegI used to marvel at the insanity of employment contracts allowing executives to be fired without severance pay only if they behave like sociopaths, which is known as “termination for cause.” I’m so jaded now that these deals hardly seem worthy of comment, but this agreement (filed with a 10-Q on Monday) between executive recruiting firm Korn/Ferry International (KFY) and its recently appointed CFO, Stephen J. Giusto, has me back on the soapbox.

As is typical, Giusto’s severance package (a year’s salary and bonus, 18 months’ company-paid COBRA, accelerated vesting of options and a pro rated performance share award) is subject to forfeit only if he’s fired for “cause,” which is not to be confused with, say, negligence or incompetence. Cause exists if Giusto engages in reckless conduct that’s likely to harm the company, gets convicted of a felony (or some lesser crime involving fraud or dishonesty), or turns out to have faked his employment history. But this contract has an added frill: the company agrees to give Giusto 90 days to ‘cure any performance deficiencies’_ before kicking him out for cause. If that’s not possible (like maybe if he’s in jail), he still gets paid leave to wait out the 90-day period.

Sure, it’s highly unlikely this wacky scenario will ever play out. But it’s fair to hold sophisticated companies to high standards in the contracts they sign, and I’m surprised a firm like Korn/Ferry (whose services include advising boards on corporate governance) has signed off on one of the silliest termination clauses I’ve seen in a while.

Giusto’s deal is pretty nice overall: $400K salary (with a possible raise as early as July), target bonus of $400-800K, a sign-on restricted stock grant of 17,000 shares, up to $700 per month in country club dues, a monthly car allowance of $450, and a promise that his “office space, office appointments, secretarial, administrative and other support, will be consistent with Executive’s status as Chief Financial Officer of the Company.” Not sure exactly what that means, but I’m guessing his office decor won’t include cinder blocks.

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