Pensions- CEO's vs worker

Hopeful

Veteran
Dec 21, 2002
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Anyone who doesn't think there is class warfare going on in thiss
country, read this!


Pension pinch? Not for CEOs

Obligations soar as top executives' plans are beefed up

By ELLEN E. SCHULTZ and THEO FRANCIS
Wall Street Journal

Posted: June 24, 2006

To help explain its deep slump, General Motors Corp. often cites "legacy costs," including pensions for its giant U.S. work force. In its latest annual report, GM wrote, "Our extensive pension and (post-employment) obligations to retirees are a competitive disadvantage for us." Early this year, GM announced it was ending pensions for 42,000 workers.

But there's a twist to the automaker's pension situation: The pension plans for its rank-and-file U.S. workers are overstuffed with cash, containing about $9 billion more than is needed to meet their obligations for years to come.

Another of GM's pension programs, however, saddles the company with a liability of $1.4 billion. These pensions are for its executives.

This is the pension squeeze companies aren't talking about: Even as many reduce, freeze or eliminate pensions for workers, their executives are building up ever-bigger pensions, causing the companies' financial obligations for them to balloon.

Companies disclose little about any of this. But a Wall Street Journal analysis of corporate filings reveals that executive benefits are playing a large and hidden role in the declining health of America's pensions. Among the findings:

• Boosted by surging pay and rich formulas, executive pension obligations exceed $1 billion at some companies. Besides GM, they include General Electric Co. (a $3.5 billion liability); AT&T Inc. ($1.8 billion); Exxon Mobil Corp. and International Business Machines Corp. (about $1.3 billion each); and Bank of America Corp. and Pfizer Inc. (about $1.1 billion apiece).

• Benefits for executives now account for a significant share of pension obligations in the U.S., an average of 8% at the companies above. Sometimes a company's obligation for a single executive's pension approaches $100 million.

• These liabilities are largely hidden, because corporations don't distinguish them from overall pension obligations in their federal financial filings.

• As a result, the savings that companies make by curtailing pensions for regular retirees - which have totaled billions of dollars in recent years - can mask a rising cost of benefits for executives.

• Executive pensions, even when they won't be paid till years from now, drag down earnings today. And they do so in a way that's disproportionate to their size, because they aren't funded with dedicated assets.

One reason executive pensions have grown so large is that they are linked to ballooning overall executive compensation. Companies often design retirement payouts to replace a percentage of what a person earns while active.

But for executives, the percentage of pay replaced is itself higher. Compensation committees often aim for a pension that replaces 60% to 100% of a top executive's compensation. It's 20% to 35% for lower-level employees.

David Dorman was chief executive of AT&T Corp. from 2002 until its merger with SBC Communications in November. He left in January. His total of five years at AT&T earned him a yearly pension of $2.1 million. That will replace 60% of his annual salary and bonus in his final three years.

By contrast, former AT&T accountant Ralph Colotti's $28,800 annual pension replaces 33% of his final pay. He was at the company for 33 years.

Colotti's pension was held down by a change AT&T made in 1998 in the formula used to calculate pensions. The switch had the effect of freezing pension growth for older workers like him. The 55-year-old now works at another company with a pension plan. "Working here another 10 years won't make up for what my old pension would have been" without AT&T's change in formula, he said.

'Reasonable' deal

AT&T described its retirement benefits as excellent and said a pension on the scale of Colotti's is good in the telecommunications industry. Dorman's richer deal is "reasonable, customary and comparable to what similarly sized companies offer," AT&T said. A spokeswoman noted that "in any industry, senior executives are almost always provided with enhanced levels of benefits as a way to recruit and retain the best talent and the best leadership possible to lead the company."

In percentage of pay replaced, Pfizer's chairman and CEO, Henry McKinnell, does best of all. His future $6.5 million-a-year pension will replace 100% of his current salary and bonus.

Even as executives' pensions grow, many companies are curtailing those for the rank and file. In one move, hundreds of employers, including Boeing Co., Xerox Corp. and Electronic Data Systems Corp., have switched to pension formulas known as "cash balance" plans. One effect is to slow the growth of older workers' pensions or halt it altogether.

Other companies, including Verizon Communications Inc. and Sears Holdings Corp., are freezing their pension plans for some workers. A freeze leaves intact pensions already earned but prevents any further growth during a worker's career.

Some employers have added pensions for executives at about the same time as they limited those for others.

Allied Waste Industries Inc. froze pensions for certain salaried workers in 1999. Among those affected was Brad Green, then a safety official at a business Allied Waste had acquired. Although he never expected his pension to be big, Green, 45, said the freeze meant any future growth "was basically just wiped out with the stroke of a pen."

Four years later, Allied adopted a pension plan that covers 10 executives. It did so "to provide a competitive recruitment and retention benefit," said Allied's treasurer, Michael Burnett. He noted that the plan that was frozen had come from a company Allied acquired.

Burnett added that all employees have a 401(k), a savings plan to which they can contribute from their own earnings. Many companies, including Allied, match part of employee contributions.

The 401(k) strategy

Companies that restrict regular pension plans often point to the 401(k), some noting that they've enhanced their match of contributions. Unlike pension plans, 401(k) plans don't create a corporate debt or liability, since employees provide most of the assets and firms are typically free to halt any contributions of their own.

Companies generally are also free to alter, freeze or end regular employees' pension plans, unless a union contract is involved. But executive pensions often are protected from management interference by employment or other contracts.

By curtailing pensions for regular workers, large companies have reduced pension obligations to them by billions of dollars in recent years. So pension obligations to regular workers are stable or shrinking at many companies while those for executives rise. At BellSouth Corp., for example, the obligations for pensions for ordinary workers have edged down 3% since 2000. The liability for pensions for executives is up 89% over the same period.

The promise of any pension becomes a corporate obligation. Although the payments are in the future, the promise means the company has a liability now. And a number can be put on it.

Pfizer's promise to pay McKinnell $6.5 million a year for life in retirement equals an $83 million liability for Pfizer today, federal filings by the drug-maker show. Pfizer defends McKinnell's pension as fair.

When Edward Whitacre, chairman and CEO of AT&T Inc., turns 65 in November, he'll be entitled to a pension of $5.4 million a year for life, plus an $18.8 million lump sum. For this, AT&T's liability today is $84.4 million, according to an actuarial estimate done for The Wall Street Journal by Katt & Co. of Mattawan, Mich. AT&T said Mr. Whitacre's pension reflects four decades of service and 15 years of "very, very strong and visionary management" as chief of the company, which was called SBC much of that time.

UnitedHealth Group Inc. Chairman and CEO William McGuire will get a $5.1 million annual pension after he retires, plus a further $6.4 million at retirement. The result is a UnitedHealth liability of about $90 million, according to two actuaries. UnitedHealth declined to comment on their estimate.

Companies sometimes offer several tiers of pensions for the highly paid. The structure at IBM illustrates this.

Its chairman and CEO, Samuel Palmisano, is due a yearly pension of about $4.7 million in retirement after age 60. He's now 54. IBM's liability today for this is about $50.3 million, according to an estimate by Katt & Co.

Another IBM pension plan, which last year covered eligible executives earning $351,000 or more, had a $204 million liability at year-end, company filings show. And for a third plan covering a broader group of the well-paid, IBM had obligations totaling $1.1 billion. IBM declined to say how many are covered by these plans, saying only that it is "thousands."

Shifting liabilities

To put the figures in perspective: The liability for IBM's regular U.S. pension plan, covering 254,000 workers and retirees, was $46.4 billion at the end of 2005. IBM no longer provides pension coverage for new hires.

An IBM spokesman described the estimate of its liability for Palmisano's pension as high but declined to provide another figure. He said Palmisano's pension from 32 years at the company will replace about 45% of his compensation, which the spokesman called below average for heads of major companies.

A result of these trends is that executive pensions make up a significant portion of total pension liabilities at many companies: 12% at Exxon Mobil and Pfizer; 9% at Metlife Inc. and Bank of America; 19% at Federated Department Stores Inc.; 58% at insurer Aflac Inc.

Companies' retirement liabilities for their executives have also grown through another little-noticed trend: Over recent years, an increasing portion of executives' pay has been postponed, via pension and deferred-compensation plans, rather than given in current paychecks.

Even if a company's liability for executives' pensions totals hundreds of millions of dollars, its employees and shareholders may never know. Companies don't have to report this obligation separately in federal financial filings. A few specify it in a footnote, and some provide clues that make it possible to derive the figure.

Perhaps the most significant effect of the limited disclosure is to make it difficult, or impossible, to evaluate company statements about their retirement burdens and the need to cut benefits. To see this, it's necessary to understand a bit about how pensions are accounted for.

Pension plans, whether for executives or for others, are obligations to pay. In other words, they're debts. And like any debt, they have what amounts to a carrying cost. That carrying cost is part of a company's pension expense.

In the case of pensions for regular employees, the expense is partly or wholly offset by investment returns on money the company set aside in the pension plan when it "funded" it.

Executive pension plans are different. For tax reasons, they're normally left unfunded. They have no assets set aside in them. That means there is no investment income to blunt the expense. The result is that obligations for executive pensions create far more expense for an employer, dollar-for-dollar, than pensions for regular workers.

Bigger expense

In Pfizer's overall U.S. pension obligation of about $9 billion, executive pensions account for about one dollar in eight. Yet the pension expense they generate is proportionately far larger - equal to more than half as much as that from pensions for regular employees and retirees, who are much more numerous. The executive plans cover 4,200 people. The regular plans cover more than 100,000.

When General Motors cites retiree costs, the giant automaker has a point: It owed nearly 700,000 U.S. workers and retirees pensions that totaled $87.8 billion at the end of last year.

But $95.3 billion had already been set aside to pay those benefits when due.

All of these assets are earning investment returns, which offset the pensions' expense. GM lost $10.6 billion in 2005. But deep as its losses have been, they would have been far worse without the more than $10 billion per year in investment income that the GM pension plan for the rank and file generates.

The pension plan for GM executives is another matter. Unfunded to the tune of $1.4 billion, it detracts from GM's bottom line each year.

Earlier this year, GM announced it would freeze the pensions of its 42,000 salaried workers starting next January, as well as of those 5,200 highly paid employees. The freeze of the executive pensions will cut GM's pension liability by $60 million, while its freeze of salaried workers will yield a far bigger reduction, $1.6 billion.

A spokeswoman for GM said its concerns about its pension plans have eased, though the company remains concerned about retiree health-care costs. With the pension freeze and improved returns on its pension assets, including billions of dollars GM has contributed to the plans in recent years, "I would say pension really is not a problem anymore," the spokeswoman said. She said that GM has no fixed obligation to pay the executive benefits and could renege at any time, although she called such a move unlikely.

GM has often said its U.S. pension plans added about $800 to the cost of each car made in the U.S. in 2004. It declines to say how much was due to executive pensions.
 
David Dorman was chief executive of AT&T Corp. from 2002 until its merger with SBC Communications in November. He left in January. His total of five years at AT&T earned him a yearly pension of $2.1 million. That will replace 60% of his annual salary and bonus in his final three years.

By contrast, former AT&T accountant Ralph Colotti's $28,800 annual pension replaces 33% of his final pay. He was at the company for 33 years


All the more reason to not give a sit
 
All the more reason to not give a sit
Whats wrong with this picture? :huh:

Presidential salary and benefits
[edit]
Salary
Presidential pay history Date established Salary Salary in 2005
dollars
September 24, 1789 $25,000 $530,909.09 (1790)
March 3, 1873 $50,000 $811,111.11 (1873)
March 4, 1909 $75,000 $1,607,339.45 (1909)
January 19, 1949 $100,000 $819,649.12 (1949)
January 20, 1969 $200,000 $1,066,666.67 (1969)
January 20, 2001 $400,000 $441,170.92 (2001)
The First U.S. Congress voted to pay George Washington a salary of $25,000 a year (about $531,000 in 2005 terms) — a significant sum in 1789. Washington, already a wealthy man, refused to accept his salary. Similarly, John F. Kennedy donated his salary to charities.[1]

Traditionally, the President is the highest-paid government employee. Consequently, the President's salary serves as a traditional cap for all other federal officials, such as the Chief Justice. A raise for 2001 was approved by Congress and President Bill Clinton in 1999 because other officials who receive annual cost-of-living increases had salaries approaching the President's. Consequently, to raise the salaries of the other federal employees, the President's salary had to be raised as well. The President's monetary compensation is minuscule in comparison to the CEOs of most Fortune 500 companies; in some parts of the United States some medical specialists (such as cardiovascular surgeons) will earn comparable salaries. Some critics suggest that, in order to attract talented management, business, and other CEO's, the President's salary should be increased, to perhaps five or ten million dollars per year. It would be a fraction of the federal budget, and would at least be somewhat on par with the going rate for modern CEO and management salaries.

In recent times former Presidents, while they remain healthy, earn far more money after the end of their presidential term; Forbes magazine estimated Bill Clinton, despite health problems that prevented him working for some part of the year, earned $6 million in 2005 [1].
 
You gripe about executive compensation and retirement, yet you probably don't think twice about Shaquille O'Neal earning $20M a year to shoot hoops or mediocre actors like Lindsay Lohan or Jessica Simpson earning millions for having no other real talent other than having found a good cosmetic surgeon...
 
You gripe about executive compensation and retirement, yet you probably don't think twice about Shaquille O'Neal earning $20M a year to shoot hoops or mediocre actors like Lindsay Lohan or Jessica Simpson earning millions for having no other real talent other than having found a good cosmetic surgeon...

Shaq, Lindsay and Jessica don't point guns at their fans' heads and say pay up or else. They don't threaten their fans with bankruptcy or actually take them into bankruptcy unless they take billions in concessions. If people wish to fork over ridiculous ticket prices to see athletes and actors earn millions, remember they are not being forced.
We as employees are being forced to accept less and less while executives earn more and more.

No one forces the sports fan or movie goer to pay.

We, on the other hand have the knife against our throats with no choice.
 
We, on the other hand have the knife against our throats with no choice.

No choice? You are a captive to nothing else but your own insecurity, and are free to leave at any time if you want to and try to earn more money somewhere else. I did. Having money left over in the checking account at the end of the month is a bit strange, but I'm sure we'll get used to it.
 
No choice? You are a captive to nothing else but your own insecurity, and are free to leave at any time if you want to and try to earn more money somewhere else. I did. Having money left over in the checking account at the end of the month is a bit strange, but I'm sure we'll get used to it.


And go where?
To another company where the upper crust elitists executives dicxtate their own market worth?

No thanks!
I'm staying put and will contine to be a disgruntled employee of AA!
 
And go where?
To another company where the upper crust elitists executives dicxtate their own market worth?

No thanks!
I'm staying put and will contine to be a disgruntled employee of AA!

Hopeful,

If you were a KISS A-- like FM, then you could got elsewhere and make more money....
 
The "let them eat cake" attitude of todays executive class is astounding. What really suprises me is that with all those who have been screwed out of promised pensions and all the gun nuts out there is that that has not been an "executive hunt" going on.

Years ago, when executive salaries were not nearly as outlandish and these guys delivered on their promises to employees many exectives were still paranoid. My father who was a Chauffeur for a large chemical company had to attend special evasive driving classes in order to protect the CEO against a kidnapping or assasination attempt, they even wanted him to carry a gun. Yet today, after thousands have been screwed over, robbed, defrauded, cast aside like trash after a lifetime of service by these newcomers with only a few years of service, despite the fact that these guys are so blatent, so arrogant, so smug and condesending as they strut around like they dont have a care in the world and rub it in everyones face that the rules do not apply to them, I havent heard of anyone going after these guys.
 
They'll give some dope 20 years in jail for robbing $1500 from a bank. You wear a suit and steal billions you might do 5 years and you still come out smelling like a rose.
 
They'll give some dope 20 years in jail for robbing $1500 from a bank. You wear a suit and steal billions you might do 5 years and you still come out smelling like a rose.
Yea and they get to keep a share of what they stole too!!