While companies have been busy closing, freezing or even terminating defined benefit (DB) plans for employees, there is one group that still seems to have a guaranteed retirement package awaiting them: CEOs at Standard & Poor's 500 companies. According to watchdog group The Corporate Library, at least half of the S&P 500 CEOs–some 258 chief executives–are in line to receive about $2.6 billion worth of DB retirement payouts. That's an average of $10.1 million each–and the numbers may even be higher.
The information is based on reviews of proxy statements from 353 member companies of the S&P 500. In April, these companies–all with fiscal years ending December 31, 2006–had to comply with new Securities and Exchange Commission rules forcing more transparent disclosure on executive compensation. Those that operate on non-calendar fiscal years will reveal the detailed information in coming months, so the numbers of both CEOs and the amount they are eligible to receive will almost inevitably rise.
Much of this generous DB disbursement comes in the form of pension-like Supplementary Executive Retirement Plans. SERPS, which are entirely funded by the corporation and don't include equity contributions, are less regulated than traditional pension plans. They also carry higher caps, so companies can lavish even more benefits on executives than otherwise allowed.
Topping the list of CEOs in line for big DB payouts are three who resigned in the past year: William W. McGuire of UnitedHealth Group Inc., who is eligible for a lump sum payment of $91.3 million even though he resigned under pressure over alleged stock option irregularities; AT&T Inc.'s Edward E. Whitacre, who accumulated a DB payout of about $84.7 million, while delivering solid returns for shareholders; and Henry A. McKinnell of Pfizer Inc.–who left after Pfizer's shares fell 40% in five years while the company struggled to develop new drugs–is set with $77.1 million. It is “ironic” that compensation committees provide retirement income “primarily to those CEOs most likely to have amassed sufficient wealth during their lifetime to make any pension somewhat superfluous,” observes Corporate Library senior research associate Paul Hodgson.
But will this additional transparency force companies to pull back? As in the past, shareholders may show little concern about how much top executives are pocketing if companies–and their shares–are doing well. But already, experts report that executive DB payouts are increasingly under attack, particularly at troubled companies, and are slowly declining in number and size.
CEOs at small and mid-cap companies are also less likely to take home big DB packages. The Corporate Library reviewed 1,829 proxy statements filed in April and only 37.35% of mid-cap and 26.87% of small-cap companies offered their CEO a DB plan.
But reports Janet DenUyl, a worldwide partner at Mercer Human Resource Consulting, don't expect SERPs and their kind to disappear any time soon. “Companies need incentives to recruit CEOs and they can't always use equity,” she says.
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