back

Many chiefs are retaining extra benefits in retirement

By : DAVID LEONHARDT and GERALDINE FABRIKANT
NY Times, September 11, 2002

Often described as a model for chief executives, John F. Welch Jr. appears to have also created the model employment contract.

The contract that Mr. Welch signed in 1996 as chief executive of General Electric was full of benefits that continue to flow to him in retirement. It quickly became a template for other executives to use to negotiate their own contracts, people in the field of executive pay say.

So, like Mr. Welch, many retired chief executives of large companies now enjoy retirement benefits like free lifetime use of a company office and secretary and frequent access to a company plane. The executives typically receive the benefits in exchange for serving as consultants to their companies, the companies say.

For John H. Bryan, Sara Lee's former chief executive, the company has agreed to pay for a car and driver through 2008, office space through 2009 and two administrative assistants through 2011. Mr. Bryan, who retired as chief executive in 2000, has a consulting agreement with Sara Lee that runs through 2009.

And Hugh L. McColl Jr., who retired from Bank of America in April 2001, has the use of an office, administrative support and, for up to 150 hours a year, a company plane, according to Executive Compensation Advisory Services, a research company in Alexandria, Va.

Some details of Mr. Welch's benefits became public last week in a divorce court filing by his wife, Jane, who is seeking additional money to maintain her standard of living. They include courtside seats at the United States Open, satellite TV at his four homes and the use of a G.E.-owned apartment on Central Park West, in addition to paying for laundry, wine, newspapers and other items associated with the apartment.

Some investors and corporate-governance experts have criticized the benefits, calling them another sign that company boards too often choose the welfare of executives over that of shareholders. Once executives retire, they should pay for their expenses with the millions of dollars they received in salary, bonus and stock, rather than using company money, the critics say.

The continued provision of these executive benefits "is the final futility of the American board as an institution capable of protecting shareholders," said Robert A. G. Monks, a longtime activist shareholder and an executive at the Corporate Library.

Company officials have defended these benefits as an important part of paying their top executives. Although chief executives of big companies rarely switch jobs, officials say the benefits ensure that executives will remain loyal to their companies even after they have left.

Mrs. Welch's filing provided a rare detailed look at executives' retirement because securities laws require that companies describe benefits only in general terms.

Companies must disclose the kind of benefits — like transportation or administrative support — that they will give their top five executives in retirement, said Scott Olsen, the leader of the executive compensation unit at Towers Perrin, a consulting firm. Companies do not need to cite the value of the benefits, however, or the specific form of transportation, for example.

G.E.'s 2001 proxy statement said the company would provide Mr. Welch with "continued lifetime access to company facilities and services comparable to those which are currently made available to him by the company." After retiring last year, he remains a consultant to the company.

There was very similar language in the contract of Michael R. Bonsignore, the former chief executive of Honeywell International, a manufacturer that almost merged with General Electric, said Judith Fischer, managing director of Executive Compensation Advisory Services.

After Mr. Bonsignore agreed to cancel two years on his contract, he received an early-retirement package that included lifetime access to company services that were comparable to those he had as the chief executive. The benefits included office and clerical support, executive transportation and security and financial planning, Ms. Fischer said.

Spokesmen for Honeywell and Sara Lee could not be reached for comment late yesterday.

A spokesman for Bank of America declined to comment on Mr. McColl's contract.

A spokesman for AOL said that the company weighed a number of considerations and decided that Mr. Levin's agreement was appropriate.

Retirement perquisites became more popular at the same time that executive pay was soaring and many stocks were gaining 20 percent in value every year. In recent months, with many stocks far below their peaks and a few big-name companies collapsing in scandals, some policy makers and investors have lobbied boards to reduce executive pay.

Some boards do appear to have become tougher when negotiating the severance packages of executives who were seen to have failed. Directors at Tyco International forced Mark H. Swartz, its former chief financial officer, to forfeit $91 million in severance pay this summer, for example. Yesterday, WorldCom’s board discussed whether it could alter a severance agreement previously signed with Bernard J. Ebbers, the company's former chief executive.

But boards have not changed the way they design contracts for new executives and they are continuing to provide the same retirement and severance benefits, lawyers and consultants say.

"I don't think there are any changes in the negotiations over severance packages," said Robert J. Stucker, a lawyer at Vedder, Price, Kaufman & Kammholz in Chicago, who represents executives during contract talks. "They're still pretty much the same."

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.