CalPERS Targets Payouts

Officials of the California Public Employees’ Retirement System said Friday that they would lead a campaign against rich severance pay for executives who sell their companies.

“We want to urge public pension funds across the country to join us,” said Rob Feckner, chairman of the CalPERS investment committee. Retirees “are tired of picking up the bill for this type of egregious behavior.”

The proposal was motivated by Anthem Inc.’s planned $17-billion acquisition of WellPoint Health Networks Inc., which would trigger compensation of up to $600 million for executives of Thousand Oaks-based WellPoint. CalPERS has protested the payouts.

Six members of CalPERS’ investment panel, including state Treasurer Phil Angelides, urged the other seven investment committee members to join them next year in pushing for change at four or five targeted companies whose severance packages “unfairly enrich insiders at the expense of shareholders.”

The CalPERS group said executives should not be allowed to cash out their unvested stock options when a company is sold. The executives should receive options in the acquiring company that would be valuable only if the transaction was a success.

Calling for reasonable severance caps, Angelides said a steep federal excise tax on golden parachutes worth more than three years’ salary has become a floor rather than a ceiling. He criticized companies that pay the tax on excessive severance on behalf of the executives, a favor known as a “gross up.”

WellPoint said Friday that it would not pay the tax for its executives, few of whom would receive enough to trigger it.

Investor activists noted that recent shareholder proposals limiting payouts to executives who sell their companies have proved popular with investors.

“This is just what CalPERS should be doing, surgical strikes on the most pressing and unifying issues,” said Nell Minow, editor of the Corporate Library, a governance research service.