Golden parachutes are back in the news these days, and as ever before, getting the black eyes they so richly deserve. Fox News Chairman Roger Ailes quickly bit the dust after long-time anchor Gretchen Carlson brought sexual harassment charges against him. She settled for $20 million while Ailes walked away in shame and disgrace – and with an exit package of $40 million. Only through Alice’s looking glass would Fox’s “fair and balanced” world give the harasser twice as much as the harassee. Former United Airlines CEO Jeff Smisek was fired last year and left with close to $37 million. Then there is Carrie Tolstedt, Wells Fargo’s vice president for sales, who was all set to parachute out of the fraudulent bank account scandal her division created with a $124 million package.
Those examples were noted in a recent Harvard Business Review piece characterizing the emerging trend of using such compensation packages to rid corporate suites of scandalized executives. That, says HBR, was never the purpose of a golden parachute. Instead, it argues, these payout packages originated in the 1970s to protect executives from being fired in corporate takeovers, not to enrich CEOs who were either dismissed for poor performance or just wanted to walk away with a bundle of cash.
What neither the fallen chieftains of capitalism nor the Harvard Business School may know is that the underpinnings of these enormous exit packages can be traced to the teachings of Karl Marx and the Communist Party. A golden parachute is severance pay on steroids. Severance is a common term in our lexicon now. It means paying workers who are laid off or bought out when a company reduces its workforce. Back in the early 1930s, however, such a practice was unheard of in this country. Severance pay originated in the newspaper industry in 1933 and quickly spread to other employment sectors. I learned all this during my career as a negotiator for The NewsGuild-CWA, the union that represents newspaper workers, among others. Here’s the quick story:
The Guild was organized in 1933 by a group of reporters and editors led by a then-prominent New York columnist, Heywood Broun. The newspaper industry was facing a recession back then and publishers were getting rid of journalists left and right. So the immediate burning issue was that dedicated, hardworking employees should not be summarily fired without some sort of compensation for their years of service, a.k.a., severance pay. Many newspaper owners agreed, and before the first comprehensive contract was negotiated, a number of papers entered into interim agreements with the Guild providing for severance pay based on length of service for laid off workers.
Those were the seeds of the golden parachutes. Because Broun and his Guild colleagues, detached journalists that they were, had little aptitude or patience for the nitty-gritty of union building, they hired a number of young, passionate organizers from the American Communist Party. It was a pragmatic, not ideological, move. The Commies knew how to organize and they helped set up local unions at newspapers throughout the country. Once the national union was up and running, the Guild, like many unions in the 1950s, got rid of the reds. But not before they had an opportunity to inject a little Marxism into the newspaper contracts.
That meant that those early severance pay agreements dealing with layoffs evolved into a system in which employees built equity in their jobs with each passing year, equity that would be liquidated when they left the company through a severance payment based on years of service. The formula in most contracts called for two weeks’ pay for each year and it was paid regardless of how the employment ended, whether by resignation, retirement, disciplinary discharge or layoff. In the event of death, the benefit was paid to the employee’s estate. The principle of severance pay was not a cushion against unemployment. It was a recognition of the Marxist concept that workers have a property right in their jobs, based on their contributions of labor. Severance was the means of cashing in that ownership stake.
Various national labor publications in the 1930s took note of this unique provision in newly negotiated newspaper contracts and the concept quickly spread. As the years passed, however, the benefit lost much of its leftist luster. When pension plans were negotiated into subsequent contracts, severance pay was scaled back so that it was paid only on dismissal or layoff. But the culture had been changed. There was an accepted practice that employees should get something more than a handshake or a kick in the rear end when walking out the door. That DNA then wildly mutated into parachutes made of gold now carrying disgraced corporate fat cats out of their executive suites. Somewhere Karl Marx is shedding a tear and insisting that this is not what he had in mind.