Nonprofit or for-profit, leaders get millions

Retiring is a time for hefty rewards

Pensions: Pay, bonuses are readily visible but retirement plans have been called "stealth compensation."


Executive Compensation Report

May 15, 2005|By M. William Salganik and Eileen Ambrose | M. William Salganik and Eileen Ambrose,SUN STAFF

With their seven-figure salaries and even larger bonuses, CEOs can buy some of the finer things in life, and put away a tidy sum for retirement.

Often, however, they don't have to.

Executive perks in Maryland, according to company filings, include morsels from a buffet that includes country club fees, disability insurance, personal use of corporate jets - even the taxes due when the CEO cashes in on stock options.

While lower-level workers are finding their health care costs increasing, some companies pick up executives' premiums, deductibles and co-payments and foot the bill for pricey physicals at elite institutions.

The big money, however, is in special executive retirement programs. Nolan D. Archibald, the boss at Black & Decker Corp., will find his retirement cushioned by more than $2.5 million in annual pension payments. And Vance D. Coffman eased out of Lockheed Martin Corp. after 37 years with two lump-sum payments of $31.5 million and $31.6 million.

For years, the light has shone on executive salary, bonuses and stock options, which are easier to decipher in a company's annual proxy statement. Executives' pensions are often overlooked - they've been called "stealth compensation" - because they are difficult to understand and disclosure is often poor. Nevertheless, shareholders eventually pay the tab.

Just how big that price tag is is revealed in a recent Harvard University study, Putting Executive Pensions on the Radar Screen. The study puts a dollar value on pension benefits of retired and soon-to-be retired CEOs of S&P 500 companies. The median amounted to 34 percent of the executives' total salary, bonus, stock options and other stock awards during their years as CEO.

"They are getting a pay bump of 34 percent and doing it away from shareholders' eyes. They are doing it behind the curtain of poor disclosure," said Robert J. Jackson Jr., one of the study's authors.

Archibald's pension, for example, was valued by the Harvard study at $38.3 million, or about 0.65 percent of Black & Decker's market value.

"That's a huge number," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "I would imagine even some boards are unaware of the value of the pension benefits that have been accrued."

But companies argue that generous pensions and other perks are necessary to attract and retain talented executives.

81% return

Archibald has led Black & Decker for more than 19 years, longer than the five years that CEOs typically stick with a company today, spokeswoman Barbara Lucas said in a statement. The toolmaker outperformed the S&P 500 for the past 15 years, reported 12 quarters of earnings-per-share growth of 18 percent or more, and last year's total shareholder return was 81 percent - a record any stockholder would deem outstanding, she said.

Lucas also disputed that executive pensions were poorly disclosed, and said that assigning a value to pensions was just one way of looking at the issue.

"Pension information is clearly displayed according to SEC regulations in the proxy statements of all publicly traded companies, and stockholders have the opportunity to evaluate it as a component of compensation," she said.

Lockheed spokesman Thomas Greer said the board weighed compensation and benefits against what comparable-size companies offer along with Coffman's long- and short-term performance at the company, which posted record sales last year and met other targets.

Supplemental plan

Executives are typically covered under the same pension plan as the rank and file. But the benefits formula of these plans takes into account only the first $210,000 of salary because of tax rules, and top executives frequently make far more. Companies bridge the gap by creating supplemental plans.

The plans can be as simple as extending the same benefit formula used in the companywide plan, pension experts said.

Or, they can offer more generous benefits, such as giving executives credit for years of service not worked, promising a certain return on investments or guaranteeing the CEO's pension no matter what happens to the company, experts said.

At spice maker McCormick & Co. Inc., for example, a group of senior executives will receive credit for additional service after age 55 to encourage retirement before 65, according to a company filing.

About 83 percent of Fortune 1000 companies provided supplemental pension plans to executives last year, according to an annual survey by Clark Consulting. In contrast, government figures report that just 21 percent of workers in private industry were covered by a pension plan last year.

Critics say it's ironic that executives demand safe, traditional pension benefits for themselves while pushing workers into riskier 401(k)s, where the ultimate payout depends on investment decisions and performance.

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