|A tale of two pension plans: regular
Retirement plans for the rich
Bebchuk, director of the Program on Corporate Governance at Harvard
Law School, co-wrote a white paper called "Executive Pensions"
with Robert J. Jackson Jr., which was released in December. They
collected information from the SEC filings of 51 large corporations.
"We use these disclosures to make estimates of
the value of pension plans awarded to the CEOs in our sample,"
the authors say in the white paper. "But such estimates are
not accessible to outsiders without closely analyzing company disclosures
and making a series of actuarial assumptions and calculations."
In other words, you and I wouldn't be able to make
heads or tails of these filings.
SERPs take the form of defined-benefit plans -- yes,
the very same plans that are heading toward extinction for the average
worker. For these plans, the company promises a specific benefit
based on tenure and assumes all investment risk.
Except that, for the CEO, tenure is one of those variables
that can be fudged. Extra years, in the form of "service credits,"
can be added on an executive's tenure for the purpose of awarding
a larger retirement benefit.
Time Magazine reported last fall on this phenomenon
in its cover story, "The Great Retirement Ripoff." The
article pointed out that, for example, Leo Mullin, former CEO and
chairman of Delta Air Lines, received service credits amounting
to 21 years that were added to his actual tenure of about 7.5 years,
an allowance that greatly augmented his retirement benefits.
And here's the corker: "Under Mullin's stewardship,
Delta killed the defined-benefit pension of its nonunion workers
and replaced it with a less generous plan," Time reporters
Donald Barlett and James Steele noted.
What stunning leadership!
Anyway, Bebchuk and Jackson set out to determine how
much a CEO's retirement benefit compares to his or her total compensation.
Was it just a teeny weeny fraction of the big picture, or was it
major? They discovered that it was rather significant, not only
as a percentage of the CEO's total compensation, but sometimes even
as a percentage of the total value of the companies they headed.
The researchers looked at two sets of data. The first
comprised CEOs who retired during 2003 and the first five months
of 2004. The second included all CEOs between the ages of 63 and
67 at the end of 2003 who would retire soon and who headed companies
listed in the S&P 500. In both sets, roughly two-thirds of the
CEOs were covered by a company-sponsored pension plan. (Roughly
one-third had no pension plan coverage at all, though they may instead
participate in a deferred compensation plan -- another type of retirement
plan favorable to executives that bypasses public scrutiny.)
It may not shock you to learn that the average payout
for CEOs that are already collecting retirement checks is $1.1 million
a year. Those CEOs who hadn't begun collecting checks yet are set
to get $1.5 million annually.