Pension goldmine awaits AT&T, Occidental CEOs

040207 Whitacre
At $158.4 million, Edward E. Whitacre Jr. will reap the biggest pension perks of any chief executive.

Edward E. Whitacre Jr. will get a $158.4 million pension package when he retires as chairman and chief executive officer of AT&T Inc. — the highest of any U.S. CEO.

Ray R. Irani, chairman, president and CEO of Occidental Petroleum Corp., is second and will reap $124 million.

The pension information is based on data compiled and analyzed by The Corporate Library, Portland, Maine, from 2007 proxy statements of 485 companies filed as of March 23.

This is the first year the SEC is requiring that companies disclose the total present value of top executives’ pension and deferred compensation arrangements in the form of a lump sum.

The results can be startling — including to the corporate boards that doled out the packages.

Paul Hodgson, senior research associate at The Corporate Library, said boards might not realize how much they’ve promised. Disclosure of the data might cause boards to re-evaluate compensation policies, he added.

Mr. Whitacre’s pension package is made up of $1.371 million from an AT&T defined benefit pension plan; $61.03 million from a supplemental retirement income plan; $22.265 million from a supplemental executive retirement plan; and $73.802 million in non-qualified deferred compensation, according to the company’s proxy statement. All amounts are present value.

The biggest deals

The Corporate Library. a research firm focusing on corporate governance and executive and director compensation, ranked the 10 CEOs with the largest combined pension and deferred compensation deals: In addition to Messrs. Whitacre and Irani, they are:

•Kenneth D. Lewis, Bank of America Corp., who is also chairman and president, $83 million;

•H. Edward Hanway, Cigna Corp., also chairman, $73.2 million;

•William C. Weldon, Johnson & Johnson, also chairman, $64.2 million;

•Alexander M. Cutler, Eaton Corp., also chairman and president, $54.6 million;

•Samuel J. Palmi¬sano, International Business Machines Corp., also chairman and president, $53.8 million;

•Harold M. Messmer Jr., Robert Half International Inc., also chairman, $53.1 million;

•Nolan D. Archibald, Black & Decker Corp., also chairman and president, $52 million; and

•Daniel P. Amos, Aflac Inc., also chairman, $50.1 million.

By contrast, the median combined pension and deferred compensation package for the 485 CEOs is $6.4 million, according to The Corporate Library. That means the top 10 CEOs’ pension perks are almost eight to nearly 25 times greater than the median.

The 10 CEOs are all within the top 50% of Standard & Poor’s 500 companies in terms of pay, said Mr. Hodgson.

Some companies — particularly newer firms — don’t provide special retirement benefits for CEOs, The Corporate Library’s Mr. Hodgson said. “EBay just has a 401(k) plan for everyone,” based on last year’s proxy statement, he said; the company hasn’t filed one this year.

A few older companies offer no special retirement plans for CEOs, he said, naming Sherwin-Williams Co. and NCR Corp.,

Without the Securities and Exchange Commission’s new disclosure rules, companies generally provided only a pension formula, necessitating proxy-statement users to calculate an annual value of pension benefits, Mr. Hodgson said. Lump-sum totals for pension benefits and deferred compensation weren’t available,

He noted AT&T was one of the few companies that had disclosed the annual pension value.

Ignorance is bliss

“In general I don’t think most (corporate) boards were aware how much money was accrued in these retirement plans,” Mr. Hodgson said. “I guess it says they either weren’t asking the right questions, or they weren’t being given the right information. In either case, it is the fault of the boards, because if they didn’t have the information, they should have asked for it.”

For deferred compensation, before the new SEC disclosure rule, companies mentioned if CEOs had such plans but provided no figures on their value, Mr. Hodgson said.

He was critical of non-qualified plans, saying: “At the level of compensation CEOs are receiving, I think a (supplemental executive retirement plan) or non-qualified defined benefit plan should play absolutely no part in their compensation whatsoever.

“If you are able, as Ed Whitacre has been, to save nearly $74 million, then it strikes me you probably don’t need further retirement benefits to be funded by shareholders. This is not a popular view among executives. But that is certainly The Corporate Library’s position.”

Responding to the size of the retirement package, Butler McCall, AT&T spokeswoman, said, “Ed Whitacre is one of the longest-serving CEOs in U.S. industry. He started with Southwestern Bell in 1963 and became CEO in 1990. During this time, Mr. Whitacre has transformed both AT&T, which is now one of the largest companies in the United States, and the telecommunications industry. As CEO, Mr. Whitacre has also delivered stockholder returns above those of our closest peers, including a 53% total return last year alone. In fact, in 2006, including share price appreciation, dividends paid and share repurchases, AT&T and BellSouth combined created nearly $89 billion in value for our stockholders.

“His pension value and deferred compensation has been building up … ever since he became an officer in 1984.”

No pension

At Occidental Petroleum, Richard S.; Kline, vice president-communications and public affairs, said Mr. Irani’s combined pension package consists only of deferred compensation. Occidental offers no defined benefit plan, qualified or non-qualified, for any salaried employee, Mr. Kline said.

“It’s entirely deferred compensation,” Mr. Kline said. “There is no pension program.”

Mr. Kline pointed out Occidental’s shareholder performance during Mr. Irani’s tenure as CEO. “Dr. Irani became CEO of Occidental in 1990,” Mr. Kline said. From the end of 1990 through 2005 — the latest statistics Mr. Kline had available — Occidental’s cumulative stockholder return was 699%, while the cumulative total return of the S&P 500 index was 413%, he said. “At the end of 2006, Oxy’s share price closed at a then record high of $48.83 — 22% higher than the previous year-end record of $39.94 set in 2005,” Mr. Kline said.

Mr. Hodgson confirmed Mr. Irani’s retirement package is just from nonqualified deferred compensation. “So in that respect it is better” that top CEOs, who also receive defined benefit pensions, Mr. Hodgson added.

38 years

At Bank of America, Scott Silvestri, spokesman, said the retirement package has been building up over Mr. Lewis’ 38 years with the company. “He runs the fifth most-profitable company in the world and shareholders have enjoyed an annual average total return of 20% during his tenure as CEO,” which began in April 2001, Mr. Silvestri said.

At Johnson & Johnson, Bill Price, director-corporate communications, said, “Mr. Weldon has accumulated his pension and deferred compensation during his career,” beginning in 1971. “As far as the pension, benefits aren’t available in a lump sum and must be taken in the form of a monthly annuity. Because other companies haven’t reported (or filed their proxy statements), it might be early to put him fifth” among CEOs with the largest pension packages, Mr. Weldon said.

At Eaton,. Kelly Jasko, manager of external communications, said, “We don’t comment beyond what is in the proxy statement.”

At Aflac, Laura Kane, second vice president-corporate communications, said, “The retirement, deferral and savings plans were established to provide competitive benefits for officers and employees of the company, in recognition of their long-term service and contributions to the company. Dan Amos is credited with 33 years of service to Aflac. I believe that his long tenure and outstanding performance speak for themselves.”

Spokespersons with the other companies couldn’t be reached for comment.