THE SEVERANCE PAY IN BRAZIL: AN ANALYSIS OF THE HRT CASE

Severance packages are granted to senior executives to mitigate management prob-lems, such as risk aversion. When the incentive plan stipulates the acquisition of con-trol as a hypothesis for triggering the indemnity, the benefit takes the form of a golden parachute and works as a defensive measure against hostile acquisitions by increas-ing the cost of the operation for the acquirer. It is understood that the evaluation of the board of directors performance in the executive pay approval must be based on the convenience of the instrument for social interest, which requires an institutional analysis. Both the ownership structure and the market for corporate control are rel-evant elements to determine if the incentive seeks to fulfill the purpose for which it is being planned, especially when the threat of hostile acquisitions is used as a justifica-tion for implementation. Therefore, based on the HRT Case, the severance pay is ana-lyzed in observance of the Brazilian capital market characteristics. Although it does not represent all the complexity of the issue, the case chosen is a portrait of a specific reality and offers important thoughts for an efficient regulation of executive pay in Brazil. This work intends to demonstrate that Comissao de Valores Mobiliarios [CVM] took into account purely theoretical benefits of the severance pay and did not incorpo-rate the brazilian stock market specificities in the analysis, a decision that brought losses to HRT Participacoes em Petroleo S/A shareholders.