The Cost of an Affair

Following up on an item from yesterday’s Inbox, Marjorie Censer of the Washington Post reports that incoming Lockheed Martin CEO Christopher E. Kubasik will receive a $3.5 million separation payment after being asked to resign last week following revelations that he had engaged in a “lengthy, close, personal relationship with a subordinate employee.”

Although some media outlets are characterizing the payment as a windfall – “Apparently, having a ‘close personal relationship’ with a subordinate can net you a pretty big payout,” writes the Huffington Post – it is clear that Kubasik’s personal conduct was financially costly.  Kubasik’s separation agreement does not include a bonus for 2012 that he would have otherwise earned in his current role as COO and President, and specifies that he will forfeit unvested stock options, unvested restricted stock units, and all uncompleted long-term incentive performance awards.  (The exact value of those options and potential bonuses is unknown, but typically, an executive who resigns will agree to release her employer from any claims the executive may have as to additional bonuses, benefits, and/or equity that might otherwise arise out of her employment agreement in exchange for the sum certain contained in the severance agreement.)

Last month, we looked at another aspect of the cost of an affair, discussing an ongoing case in California in which an employee was allegedly terminated because one of the company’s co-owners thought she was having an affair with the boss.

Marillyn A. Hewson, VP of Lockheed Martin’s Electronic Systems division, will become President and CEO effective Jan. 1, 2013.  Hewson’s Electronic Systems business unit has 45,500 employees and did $14.6 billion in sales in 2011, approximately one-third of Lockheed Martin’s total revenues.  On Friday, Lockheed Martin’s stock rose 6 cents per share to $89.98 following the announcement of Hewson as incoming CEO.

• Breach of Contract