Tuesday, October 18, 2011

What in the world is "constructive termination"


Sears Holding (NYSE: SHLD) Herb Greenberg reported on CEOs on the hot seat in his latest column. He included a reference to Sears Holdings (NYSE: SHLD) CEO Alwyn Lewis, who may be poised to serve as sacrificial lamb for the company's failed turnaround -- which should probably be blamed on chairman Eddie Lampert, because he controls the company's investments and failure to invest in its stores.
Greenberg notes that, "Still, with a 2006 salary of $1 million and total compensation of $4.8 million, it would appear that unless Sears reports exceptional fourth-quarter results, Lewis may be on the path to scapegoat, which might not be so bad: If he's fired for what the company calls "constructive termination," he will get a cash payment of $3 million with a total package valued at $22.9 million. A Sears spokeswoman declined to comment. "
I've heard the phrase "constructive termination" before but never really given it much thought. Lewis' employment agreement defines this phrase as Lewis' voluntary resignation following a board stripping him of his titles, an adverse change in his responsibilities, or even a reduction (heaven forbid!) in his base salary and/or bonus.
This is about as great of an example of management gibberish as you'll ever come across -- and sadly it exists in the employment agreements of many executives. Constructive termination means resigning after you've essentially been fired. Calling it constructive is like saying that kicking someone in the groin for giving a wrong answer in math class is constructive criticism.
It would appear that this idea of constructive termination is a key factor in allowing executives who are essentially fired to walk away with huge, or even moderate, severance packages. Why should someone who's fired for bad performance even get severance?
Hopefully shareholder activists will take this issue on in the future.


Anonymous said...

Calling all Conway Drivers who Quit becuase they could not take it anymore. Please come on and tell your story.

Conway/XPO Employees said...

Constructive Termination is when a Employee can't take his working condtions anymore and Quits.if this has happenend you Please tell us your story..