CEO Pensions: The Latest Way to Hide Millions!

FORTUNE ^ | Monday, April 14, 2003 | By Janice Revell

[getmeouttaPalmBeachCounty_FL]

Think CEO pay is out of control? Wait till you see what these guys get when they retire.

For a brief, shining moment, it looked as if outrage had finally triumphed over excess. Earlier this month, soon after Delta Air Lines disclosed that CEO Leo Mullin had hauled in a bonus of $1.4 million plus $2 million in free stock in 2002, howls of protest from shareholders and employees prompted a dramatic turnabout. After all, in 2002 the airline had lost $1.3 billion, slashed thousands of jobs, and seen its stock price collapse by 58%. Mullin announced that he was voluntarily slicing his $795,000 salary by 25%, giving up the opportunity to receive a bonus in 2003, and forfeiting another $2.4 million in retention payments due him over the next two years. "In the current circumstances," he said in a memorandum to Delta employees, "the steps I am taking feel right to me."

What apparently didn't feel right to Mullin was the notion of trimming his huge pension--a pension that, by the way, he mostly didn't earn. You see, Mullin has been employed by the airline for only five years and eight months. But a special pension plan that Delta's board created for top executives has credited him--shazam!--with another 22 years of service. Thanks to those phantom years, the 60-year-old CEO could walk away from the airline today and be entitled to receive a payout of about $1 million a year, starting at age 65, for the rest of his life. And if the airline goes bankrupt, no problem: Special Delta-funded trusts protect the pensions of Mullin and 32 fellow executives from creditors. "During these very difficult times in the industry, the board decided that they needed to do something to retain qualified executives," explains a Delta spokesperson.

That level of concern doesn't extend beyond Delta's executive suite. Declaring that its retirement expenses were increasing at an "unsustainable rate," the company announced in November that it was phasing out the traditional pension plan for its 56,000 nonunion workers and replacing it with a less costly version, known as a cash balance plan. Benefits experts say the switch could shrink the expected pensions of older workers by as much as half. The typical pension payout of a 50-year-old flight attendant with 20 years of service, for instance, could easily plunge to $15,000 a year.

Witness the latest--and quite possibly the greatest--double standard in the world of compensation. At the same time big companies are taking an ax to the traditional pension plans of the rank and file, they are funneling millions of dollars into what's fast becoming the ultimate pay-for-nonperformance vehicle: the executive pension plan. In this magical land, years are transformed into decades, and the term "shareholder value" doesn't apply.

And don't think pensions are bit players in the grand scheme of executive pay: Using the most conservative actuarial assumptions, the $4.5-million-a-year pension that former Tyco CEO Dennis Kozlowski is now attempting to collect is worth some $50 million in today's dollars. That's $50 million belonging to current Tyco shareholders.

So why, you may wonder, aren't investors up in arms over these jaw-dropping retirement giveaways? The answer is that hardly anybody knows about them. The complex details surrounding executive pensions are typically buried deep within a company's SEC filings, far removed from the salaries, bonuses, and stock options that dominate the headlines. "It's stealth compensation," declares executive-pay expert Graef Crystal.

Blame the SERP. A SERP (supplemental executive-retirement plan) is a steroid-enhanced version of the traditional defined-benefit pension plan, in which a company sets aside a given percentage of an employee's pay every year to produce a guaranteed payout. SERPs are now offered by about half of all big publicly traded companies, usually only to the CEO and the next dozen or so officers. And while the combination of a collapsing stock market and low interest rates have placed pension plans for ordinary Joes in jeopardy--about 40% of big companies that offer company pension plans are now seriously considering cutting benefits, according to a recent survey by accounting firm Deloitte & Touche--that's not the case for top execs.

[getmeouttaPalmBeachCounty_FL]

[GraniteStateConservative]

Take it up with Adam Smith.

[banjo joe]

Get yer asbestos suit ready, I see the flames are already coming, LOL!

And yep, pay for non-performance.

[jjm2111]

Not from me. Executive compensation is a giant one hand washing the other racket. It's one thing for the CEO to receive an obscene salary when business is doing great, but if the company's profits and share price drop by 40% and the CEO gets a 30% raise, that's a crime.

What I don't know is why instituitional investors don't make a big deal about wasted money like ridiculous comp for execs and letting former CEOs use the corporate jet?

Also, could any FReeper comment on whether SERPs violate ERISA?

[getmeouttaPalmBeachCounty_FL]

Two days ago, I was shocked. Yesterday, I was disgusted and angry. Today, I am wanting to fight this, but right...who the heck am I? I have no powerful name or influence to do a darn thing except go through my house with a spray bottle of cleaner and a paint brush to ready it for a quick sale.

Two days ago, 69% of the American Airlines pilots' union voted to pass our CEO's Tentative Agreement to "save us" all from bankruptcy. The pilots and the other unions were shouted at by CEO Carty & his puppets to pass it or else an immediate Chapter 11 filing would be initiated. Nothing was spelled out on paper because we were all told that debts were due to be paid no later than April 15th, and this was a crisis, and time was running out as fast as the money, blah-blah-blah-blah-blah.

The concessions can be found on the SEC page online, and I will link that as soon as I can. In a nutshell, thousands of pilots, flight attendants, mechanics, and other fathers and mothers trying to earn their living will be booted from Carty's Double A Ranch. Those who will remain as ranchhands will find that the damage of their votes has resulted in cow patties for their retirement.

Meanwhile, sitting high in the saddle is Mr. Carty.

FReepers...(sigh)...I really can't be sitting here right now, as I have to get back to cleaning. (Dh had to run an errand)

Why are the CEOs so protected, and the rest of us are not? Why are they so sovereign? Why is it that in dh's contract there is written such a thing as "furlough protection," yet *that* contract means diddly? Why do we even have contracts if CEOs can do whatever they can get away with, anyhow? Why were the pilots denied extra time to vote this past Monday so that the TA could be reviewed in its final, written form, yet the Flight Attendants saw the CEO roll out the proverbial "red carpet?" The judge told the pilots to pack sand, as a delay would cause a Chapter 11 filing. And can anyone tell me why on the SEC filing on the 15th, I read the following?:
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted under the reduced disclosure format pursuant to General Instruction I(2)(c) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION
Omitted under the reduced disclosure format pursuant to General Instruction I(2)(c) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted under the reduced disclosure format pursuant to General Instruction I(2)(c) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted under the reduced disclosure format pursuant to General Instruction I(2)(c) of Form 10-K.


I cannot even begin to describe to you all, the devastation in dh's eyes. Coming from the Marine Corps & semper fi to this is disappointment, loss and above all, betrayal.

Well...thanks for listening. You guys are awesome!

[getmeouttaPalmBeachCounty_FL]

Check this out (be back online later):
http://cbs.marketwatch.com/tools/quotes/person.asp?siteid=mktw&pid=2385

Apparently the heads of AA protected *their* pensions 'till the end of the world last October, although I have not seen that info for myself.

[jjm2111]

So while the stock falls from $25 to $5 Carty rakes in $2.5 million. Please. Your union reps should have held firm and told him to give up his salary.

[Paul C. Jesup]

It has been proven (Foxnews, Neal Covuto) that some of the cheapest CEO's are some of the best. This is a good way to tell which company would be good to invest in.

[justshutupandtakeit]

CEOs in other countries are not paid these obscene salaries and somehow their companies thrive.

[DensaMensa]

}CEOs in other countries are not paid these obscene salaries

And those nasty, petty, jealous, mean-spirited anal-retentive little countries are not American either, are they?

[lilylangtree]

"During these very difficult times in the industry, the board decided that they needed to do something to retain qualified executives," explains a Delta spokesperson."

This is the same lame excuse given each time to explain Board of Directors actions when dealing with an outrageous salaries, monetary, stock and options bonuses. I've started to mark on all proxy ballots to withhold my vote on all the members of the board, and anything the board is for, I'm against.

[justshutupandtakeit]

I am speaking of advanced capitalist countries such as Japan, Germany, France, the Netherlands etc. not Togo or the Central African Empire. Those capitalist countries are not all the same but none allow the looting of public corporations by executives like America does.

American stockholders are suckers. Almost every one of these bloodsuckers could be replaced and NO ONE would notice any difference in the companies' performance. Enron and World Com executives wallowed in their ill gotten loot right up to the moment their companies went over the cliff.

[justshutupandtakeit]

Like one of the exes of an airline company losing billions is a hot commodity. Ridiculous.

I do the same.

These guys are geniuses one year and idiots the next.

[DensaMensa]

} American stockholders are suckers.

Oh, I do agree with that. Most are quite uninformed about their investments and have no business investing in stocks.

But I don't agree that executive salaries are "obscene". They are openly negotiated in a free enterprise environment. No one is forced to do anything. Would you want government bureaucrats determining what are "fair" salaries?

Do you also think some sports figures are movie stars salaries are "obscene"?

[3Lean]

"none allow the looting of public corporations by executives like America does"

These are not public corporations. They are private entities owned by a group of the general public. Amtrak and the US Postal Service are public corporations.

What business is it of anyone other than the stockholders how much the CEO makes?

Should the stockholders pay attention? Absolutely
Should the stockholders raise heck? Absolutely
Can the stockholders remove their investments? Absolutely

What is the problem????

[3Lean]

Has anyone started a "Dogs of the Dow" type investment fund based on this information? If accurate that would be a way for the stockholders to police CEO salaries. It would also very quickly prove or disprove the theory.

[DensaMensa]

}...advanced capitalist countries such as Japan, Germany, France, the Netherlands etc. not Togo or the Central African Empire.

Excluding Japan, what do these "advanced counntries" have in common?

ANSWER: None of these "advanced" countries supported Free Enterprise American in the Gulf.