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Mike Lazaridis' generous compensation package is raising eyebrows.
Getting paid handsomely for a job well done is one thing. But receiving ultra-generous generous while your company is sinking? That's another matter altogether.
An SEC filing disclosed that Research in Motion (RIMM) gave its departing founders and co-CEOs a combined $12 million in compensation for its latest fiscal year, even though they were relieved of their executive duties in January.
Yes, Mike Lazaridis and James Balsillie "revolutionized the worldwide wireless industry with the introduction of the BlackBerry and forever changed how the world communicates," as the filing stated. Unfortunately for RIM, the world today communicates mostly on iPhones and Android devices, a turn the two former chiefs failed to navigate.
Today, the Blackberry manufacturer's market cap, at a bit over $5 billion, is only around 6 percent of its 2008 high and its stock price is struggling to stay above $10. The two CEOs were replaced by former COO Thorsten Heins in January, who has indicated a willingness to consider any and all options to salvage the company.
Nevertheless RIM paid Balsillie nearly $8 million, including nearly $5 million in severance, while Lazaridis got $4 million, according to All Things D.
Multimillion-dollar paychecks for top executives seem discordant when shareholder value is evaporating, but compensation experts say the link between executive pay and performance has weakened even as the size of those compensation packages skyrockets.
"The connection between performance and pay is getting more and more attenuated," said Kent Greenfield, professor at Boston College Law School.
According to the AFL-CIO's annual survey on executive compensation, CEO pay at companies in the S&P 500 rose nearly 14 percent in 2011 to an average of $12.94 million.
There is somewhat of a herd mentality among the compensation committees on corporations' boards that are responsible for executive pay, which is a contributing factor to the disconnect, Greenfield said.
"They'll take a look at what competitors are paying their executives and peg their compensation above the average," he said. Since everyone wants to be above the middle of the bell curve, the result is an ongoing inflation of pay packages, Greenfield said. "They think these CEOs are like Lebron James."
When a company is performing well, benchmarking against what competitors pay makes sense, especially in the tech industry, where only a small pool of people have the vision and skills to turn evolving ideas into revenue.
"In order to attract the best talent, companies have to be willing to pay," said Geoff Hoffmann, COO at executive search firm DHR International. "Sometimes it works out, other times it doesn't."
Barry Reiter, senior partner at law firm Bennett Jones LLP, said there are varying degrees to which companies try to make compensation committee members act in shareholders' best interests. "Some of the better companies have the requirement that ... a lot of what they get paid for the first few years is plowed into the stock," he said.
Board and committee members can sometimes have their own priorities, though. "It's a networking thing, it's a prestige thing," Reiter said. "It tends to be an important thing to the people who do it and that sort of is a thing that undercuts the notion of independence even if you have no other ties to the company." If a CEO has a lot of influence over member selection, those directors could be motivated to approve higher compensation.
This financial arms race has broader consequences, Greenfield warned. "It's harmful for the economy," he said, pointing out that outsized pay packages for executives at troubled companies come at the expense of employees and shareholders. "A democracy can't survive when there's such extraordinary inequality," he said.
A research paper by Emmanuel Saez, a professor at the University of California, Berkeley, found that 93 percent of income gains in the post-recession recovery went to the wealthiest 1 percent. In 2010, income for the top 1 percent grew nearly 12 percent. For everyone else, the income gain was only 0.2 percent. "We need to decide as a society whether this increase in income inequality is efficient and acceptable," Saez wrote.
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