Executive pensions are swelling at such companies as General
Electric Co., United Technologies Corp. and Coca-Cola Co. While
a significant chunk of the increase is the result of arcane pension accounting
around issues like low interest rates and longer lifespans, the rest reflects
very real improvements in the executives’ retirement prospects.
Pension gains averaged 8% of total compensation for top
executives at S&P 500 companies last year, up sharply from 3% the year
before, according to data from LogixData, which analyzes SEC filings. But the
gains are much larger for some executives, totaling more than $1 million each
for 176 executives at 89 large companies that filed proxy statements through
mid-March. For those executives, pension gains averaged 30% of total pay.
The gains often don’t represent new pay decisions by
corporate boards. Instead, they reflect the sometimes dramatic growth in value
of retirement promises made in the past. Nonetheless, they are creating an
optics problem for companies at a time when executive-pay levels are under
greater scrutiny from investors and the public. Companies now face regular shareholder
votes on their pay practices that can be flash points for broader concerns,
leaving them sensitive about appearing too generous.
New mortality tables released last fall by the American
Society of Actuaries extended life expectancies by about two years. That, as
well as low year-end interest rates, helped push pension gains higher than many
companies had expected. The result is much higher current values for plans with
terms like guaranteed annual payouts, which are no longer offered to most
rank-and-file workers.
GE Chief Executive Jeff Immelt’s compensation rose 88%
last year to $37.3 million. Meanwhile, excluding $18.4 million in pension
gains, his pay actually fell slightly to $18.9 million. The company says about
half of the pension increase came from changes in its assumptions about
interest rates and life span. About $8.8 million, however, comes from an
increase of nearly $490,000 a year in the pension checks he stands to take home
as his pay has risen and he approaches 60 years old, the age at which top GE
executives can collect full pension benefits.
The SEC is particular about how companies report pay in
their proxy statements. There is a standard table that breaks out salary,
bonuses and pension gains, along with totals for the past three years, and
other details. GE, encouraging investors to overlook the pension gains, added a
final column to the table to show what top executives’ total pay would look
like without them. The company says investors find the presentation useful in
making proxy voting decisions.
Executive pensions generally don’t consume the attention
that pensions for the rank and file do. For years, as costs of traditional
pension plans have risen amid low interest rates and longer lifespans, big
companies have been closing them to new employees or even freezing benefits in
place, often continuing with only a 401(k) plan for all but the oldest workers.
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