Bruce R. Ellig, author of The Complete Guide to Executive Compensation, says that those with responsibility for paying executives need to be thoughtful in the way they handle death benefits for those executives. "Executive death benefits, sometimes referred to as 'golden coffin pay,' are drawing a lot of attention, because they are clearly not pay for performance," he says.
The new proxy disclosure rules from the Securities and Exchange Commission have caused much more scrutiny of all kinds of deferred compensation, Ellig says, including termination pay. Whether termination is through death or departure, the issue bears close examination and advance planning.
"I believe that a case can be made for offering the same pay package for a death--while the executive is an active employee--as a company-initiated departure," Ellig says. "In both cases, the individual did not trigger the event. Typical benefits would include vesting unvested deferred compensation, including the ability to exercise unvested stock options."
"However, that said, the total package still may not be adequate for a young executive with significant family obligations, but the amount of the shortfall should be determined by the executive's financial advisor, not the company. Decreasing-term insurance purchased by the executive might be the best alternative to make up the deficit. Companies that attempt to take on this financial obligation will have to explain why, since it is clearly a perk--pay for position--and not pay for performance," Ellig concludes.