Mixed Signals

I hope everybody caught Peter Eavis' recent article on the severance packages awarded to parting Conseco (CNC Quote) execs Stephen Hilbert and Rollin Dick. I especially liked the part where Conseco's board decreed that $23 million recently fronted Hilbert to cover margin calls would be "deducted" from his severance package. But a bigger question remains: What about the $162.5 million he still owes on the purchase of Conseco stock over the years?

As it turns out, Hilbert's severance agreement contained a codicil to the effect that Conseco would "continue to treat Mr. Hilbert as though he were an employee/participant for purposes of the Purchase Plans." The result, according to Conseco, is that "all of [Hilbert's] loans relating to such plans remain outstanding."

But before you think that justice has been served, realize that while terms like "full recourse" and "fully collateralized" may seem ironclad when applied to you, they can be remarkably ephemeral in the hands of a corporate board of directors. Don't believe me? Consider the $4.2 million loaned by Mattel (MAT Quote) in 1997 to spare then-CEO Jill Barad the temptation of cashing in her just-vested restricted stock. When Barad recently stepped down, that loan was -- you guessed it -- forgiven.

Now, it's difficult to argue against the virtues of executives maintaining ownership stakes in the companies they run. Nor am I implying that most of these loans aren't eventually repaid (though this, too, might make for an interesting study). What I am saying is that I would personally prefer that executives put up their own funds when buying stock. Which brings me to my second warning: ...