Welch to pay GE for most of his retirement perks

But $2.5 million a year may still be a bargain

September 17, 2002|By NEW YORK TIMES NEWS SERVICE

Jack Welch Jr., the former General Electric Co. chief executive, will pay for most of the corporate perks he negotiated to receive in retirement, including the use of a Boeing 737 business jet and an apartment overlooking Central Park, the company confirmed yesterday.

The decision that Welch will pay for the benefits came as the Securities and Exchange Commission, investors and corporate governance experts raised questions about how much shareholders know about the true cost of perks to current and retired executives. GE said the SEC requested information Friday night about Welch's benefits, both as chief executive and after he retired a year ago.

Welch sought to cast the decision as symbolic of the end of an era, suggesting that some compensation packages negotiated by chief executives when the stock market was soaring may no longer be palatable to investors and the public. But executive recruiters and shareholder activists said they did not expect to see a long line of retired chief executives scrambling to follow Welch's lead.

Welch estimated that he will pay GE nearly $2.5 million each year for perks such as the use of corporate planes and the Manhattan apartment.

The board agreed in principle on Thursday to having Welch retain his perks, but pay for them, said Gary Sheffer, a GE spokesman.

Sheffer said last night that Welch will also reimburse GE for perks he has received since he retired, but that the amount has not been determined.

The $2.5 million that Welch estimated he will pay annually may be far less than the actual cost to GE to provide those services because of government rules on how to value perks.

For example, under federal rules, it would cost an executive less than $500 to take a corporate jet from New York to Paris on vacation, but the flight would actually cost shareholders at least $15,000.

And there may never be any disclosure to shareholders of just what these perks cost because SEC disclosure rules do not apply to retired chief executives. It is also unknown whether federal or Connecticut tax authorities are examining whether the full value of the perks was reported on Welch's W-2 statement.

GE also will review Welch's travel at year's end to determine how much of the cost, if any, should be paid by his new employer, the investment firm Clayton Dubilier & Rice, and by his consulting clients, including J.P. Morgan Chase & Co., Sheffer said last night.

John Coffee, a securities law expert at Columbia University, said Welch's case illustrates how an SEC rule limiting disclosure of executive perks to "incremental cost" - how much extra a company pays for a given benefit - had been stretched "by very sharp corporate lawyers who have taken a small exception and turned it into a huge loophole."

He said many companies were using the "incremental cost" rule to hide the true cost of perks. "If the CEO has a masseuse, they will tell you the person was on the staff anyway so there was no incremental cost," Coffee said. Coffee said Welch's perks show how even at companies where there is no hint of fraud, the disclosure rules do not serve shareholders well.

Welch disclosed the decision in a column yesterday in The Wall Street Journal. His benefits had received wide attention after The New York Times reported that his wife, Jane, in their divorce proceedings, had disclosed an extensive list of perks.

Jane Welch, in the filing in Connecticut, said she was receiving $35,000 a month from her husband. She said that was far below what she needed to maintain a lifestyle that during 13 years of marriage included, by her count, $3.5 million annually worth of travel on the GE 737, millions of dollars of home improvements at company expense and a $100,000 annual fund for charitable gifts. The court filing, Jack Welch wrote, "grossly misrepresented many aspects of my employment contract."

He wrote that he was "not going to get into a public fight refuting every allegation in that filing," but did reiterate past statements that he rarely used tickets to sporting and cultural events that GE makes available to him and that he does not have a cook. The issue, he said, was not the perks themselves, but how to deal with the dilemma his wife's filing created.

If he kept the perks, which he wrote that he negotiated in 1996 in lieu of a bonus of "tens of millions of dollars," he risked being perceived as "out of touch in today's post-Enron world." If he modified the contract, however, he worried that others would believe he was acknowledging "having done something improper."

He expressed concern that the deal he made in 1996 - to stay another five years with GE and in return receive for life the perks he enjoyed as chief executive - "could be misportrayed as an excessive retirement package, rather than what it was - part of a fair employment and post-employment contract made six years ago."

"In these times when public confidence and trust have been shaken, I've learned the hard way that perception matters more than ever," Welch wrote. "I don't want a great company with the highest integrity dragged into a public fight because of my divorce proceedings."

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