Retiring is a time for hefty rewards

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With their seven-figure salaries and even larger bonuses, CEOs can buy some of the finer things in life, and put away a tidy sum for retirement.

Often, however, they don't have to.

Executive perks in Maryland, according to company filings, include morsels from a buffet that includes country club fees, disability insurance, personal use of corporate jets - even the taxes due when the CEO cashes in on stock options.

While lower-level workers are finding their health care costs increasing, some companies pick up executives' premiums, deductibles and co-payments and foot the bill for pricey physicals at elite institutions.

The big money, however, is in special executive retirement programs. Nolan D. Archibald, the boss at Black & Decker Corp., will find his retirement cushioned by more than $2.5 million in annual pension payments. And Vance D. Coffman eased out of Lockheed Martin Corp. after 37 years with two lump-sum payments of $31.5 million and $31.6 million.

For years, the light has shone on executive salary, bonuses and stock options, which are easier to decipher in a company's annual proxy statement. Executives' pensions are often overlooked - they've been called "stealth compensation" - because they are difficult to understand and disclosure is often poor. Nevertheless, shareholders eventually pay the tab.

Just how big that price tag is is revealed in a recent Harvard University study, Putting Executive Pensions on the Radar Screen. The study puts a dollar value on pension benefits of retired and soon-to-be retired CEOs of S&P 500 companies. The median amounted to 34 percent of the executives' total salary, bonus, stock options and other stock awards during their years as CEO.

"They are getting a pay bump of 34 percent and doing it away from shareholders' eyes. They are doing it behind the curtain of poor disclosure," said Robert J. Jackson Jr., one of the study's authors.

Archibald's pension, for example, was valued by the Harvard study at $38.3 million, or about 0.65 percent of Black & Decker's market value.

"That's a huge number," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "I would imagine even some boards are unaware of the value of the pension benefits that have been accrued."

But companies argue that generous pensions and other perks are necessary to attract and retain talented executives.

81% return

Archibald has led Black & Decker for more than 19 years, longer than the five years that CEOs typically stick with a company today, spokeswoman Barbara Lucas said in a statement. The toolmaker outperformed the S&P 500 for the past 15 years, reported 12 quarters of earnings-per-share growth of 18 percent or more, and last year's total shareholder return was 81 percent - a record any stockholder would deem outstanding, she said.

Lucas also disputed that executive pensions were poorly disclosed, and said that assigning a value to pensions was just one way of looking at the issue.

"Pension information is clearly displayed according to SEC regulations in the proxy statements of all publicly traded companies, and stockholders have the opportunity to evaluate it as a component of compensation," she said.

Lockheed spokesman Thomas Greer said the board weighed compensation and benefits against what comparable-size companies offer along with Coffman's long- and short-term performance at the company, which posted record sales last year and met other targets.

Supplemental plan

Executives are typically covered under the same pension plan as the rank and file. But the benefits formula of these plans takes into account only the first $210,000 of salary because of tax rules, and top executives frequently make far more. Companies bridge the gap by creating supplemental plans.

The plans can be as simple as extending the same benefit formula used in the companywide plan, pension experts said.

Or, they can offer more generous benefits, such as giving executives credit for years of service not worked, promising a certain return on investments or guaranteeing the CEO's pension no matter what happens to the company, experts said.

At spice maker McCormick & Co. Inc., for example, a group of senior executives will receive credit for additional service after age 55 to encourage retirement before 65, according to a company filing.

About 83 percent of Fortune 1000 companies provided supplemental pension plans to executives last year, according to an annual survey by Clark Consulting. In contrast, government figures report that just 21 percent of workers in private industry were covered by a pension plan last year.

Critics say it's ironic that executives demand safe, traditional pension benefits for themselves while pushing workers into riskier 401(k)s, where the ultimate payout depends on investment decisions and performance.

"If anything, you would think that executives are in a better position to bear the risks of investment performance than regular employees that have less of a cushion," said Lucian A. Bebchuk, director of Harvard's program on corporate governance and co-author of the pension study.

"What's happened is that companies have transferred the risk of retirement to their workers," said Brandon Rees, a research analyst with the AFL-CIO Office of Investment, which tracks executive compensation.

"In contrast," Rees observed, "executives have negotiated guaranteed retirement benefits for themselves."

Because the bulk of executives' retirement money comes from these supplemental plans, they have little stake in the health of the companywide pension plans, others said.

Pension experts also say there needs to be better disclosure of executive retirement plans to rein in excessive packages.

"If you gave them sunshine, they would shrink," said Teresa Ghilarducci, a University of Notre Dame economics professor.

Executives not only are rewarded on the way out. Some collect on the way in, as well.

'Transaction bonus'

John Arlotta got a $300,000 "signing bonus" when he became CEO of NeighborCare Inc., a Baltimore-based institutional pharmacy chain. And when Foundation Coal Corp. was created by a deal last year, CEO James Roberts was awarded a $710,000 "transaction bonus."

In between coming and going, Maryland CEOs benefit from a variety of perks while they serve. Some examples, according to company filings:

  • NeighborCare ponies up for dues and membership fees for "the golf club of his choice" for Arlotta. The company also pays $75,000 a year in life insurance premiums for its chief.
  • Marriott International CEO J. W. Marriott Jr. got "$72,500 in personal financial services and $41,091 in personal use of the Company jet," according to a company filing.
  • Manugistics Group Inc. paid $7,712 for "professional tax and estate planning services" for then-CEO Gregory G. Owens.
  • Foundation Coal's employment contract with CEO Roberts specifies it will reimburse him and other executives for legal fees in negotiating their employment contracts - up to $125,000. Many companies even spring for the taxes that executives owe on perks or when exercising stock options. Shore Bancshares Inc., a bank holding company in Easton, paid taxes totaling $12,440 over three years on behalf of its chief executive, W. Moorhead Vermilye, for the use of a motor vehicle plus $143,071 for taxes in connection with the exercise of stock options in the past two years. And there are protections against cutbacks that rank-and-file workers could suffer. Jos. A. Bank Clothiers Inc., for instance, has promised CEO Robert N. Wildrick that if any company benefits are reduced, he'll be given "a plan or program to provide benefits to Executive of at least equivalent" to those he had been getting. The majority of CEOs receive company-paid financial counseling, life insurance and "corporate transportation of one kind or another," said Paul Hodgson, senior research associate at The Corporate Library, an independent research firm in Portland, Maine, that monitors executive compensation.Free up CEO's time Such perks are generally justified as freeing up the executive's time and attention to concentrate on business, said Janet DenUyl, leader of the executive benefits practice for Mercer Human Resources Consulting. For example, she said, paying for "financial planning is a good idea, because you don't want that person sitting there deciding whether to exercise options." Also, Hodgson said, top executives often get a better deal on health coverage than ordinary workers, although the medical benefits are seldom clearly spelled out in public filings. Some insurance policies for executive pick up the cost of deductibles and co-payments that other workers pay. For example, Jefferson Pilot Financial Insurance Co., of Omaha, Neb., offers a package called Exec-U-Care, that pays up to $100,000 in out-of-pocket charges a year. In addition, some top managers get "executive physicals," that cost about $2,000 each.Pricey checkups Johns Hopkins is among the prestigious medical centers that offer custom checkups for executives. Others include Cleveland Clinic, Scripps Memorial Hospital in San Diego, Stanford University Medical Center, and Duke University Health System. Hopkins will see at least 1,200 executives for exams this year, about half of them from the local area, according to Dr. George H. Sack, medical director of the Johns Hopkins Executive Health Program. You don't have to be an executive to get a Hopkins executive physical, but you do have to be willing to pay out the $2,000. "We don't do insurance," Dr. Sack said.
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