$250-Million ‘Silver Seat Belt’ Plan : Hughes Covers Top Executives

The top executives and scientists at Hughes Aircraft will not receive any “golden parachutes” in the merger with General Motors, but they are getting something at least as good: a “silver seat belt” plan funded at $250 million.

Hughes Chairman Allen E. Puckett will receive future payments of $6.5 million, making him the largest beneficiary of what is officially termed the “Hughes long-term incentive plan.”

The plan, quickly dubbed the “silver seat belt” by Hughes employees, was disclosed in a prospectus issued by General Motors this week in connection with its $5.1-billion acquisition of Hughes Aircraft. The term “silver seat belt” refers to the primary feature of the plan that seeks to persuade people to stay with the company, as opposed to “golden parachutes,” which pay off top executives to leave after a merger.

The awards are contingent on participants staying at Hughes for at least five years. The plan was designed earlier this year to ensure that whoever purchased Hughes would be getting a whole company, Hughes officials said.

“In selling Hughes, the institute was really selling people,” Hughes Vice Chairman Richard Alden said. “The plan was worked out in an effort to retain people during the transition period.”

About 1,000 scientists, engineers and executives are covered under the plan. It will be funded by a $250-million payment by Hughes into a trust account at the time that the acquisition deal closes, according to the prospectus.

The $250-million payment will result in a $135 million after-tax charge against the company’s income. The charge probably means that Hughes will have a fourth-quarter loss, since the firm posted only $118 million in net income during the first three quarters of 1985.

But a loss, if any, may never be publicly known because Hughes, as a hitherto privately owned

company, has not report ed financial results and now will be merged with a company that, while publicly owned, need not break out the results of one of its divisions.

Hughes will obtain funds for the plan through borrowing, according to the prospectus. The debt would be serviced by annual $22.5-million payments over the next five years by General Motors Hughes Electronics, the new holding company created to own Hughes.

Although the disclosure does not break out individual awards under the plan, GM spokesman Don Postma said that Puckett will receive $1.3 million annually for the next five years. The money is to be paid in three installments at the end of the third, fourth and fifth years of the plan.

To receive the full $6.5 million, Puckett will have to continue at the corporation for six years. Puckett, 65, has previously said that he planned to stay on as chairman for four years. It is not known whether he has changed his mind.

The plan was enacted in early 1985 by the Hughes Aircraft board and approved by the Howard Hughes Medical Institute, until now the sole owner of the aircraft company. Medical Institute officials said the plan was an important feature in its effort to sell Hughes.

“There was a question of how we could hold together such a company in a transitional period of uncertainty and have the top management remain together so that a sudden departure wouldn’t occur,” said Dr. Donald S. Fredrickson, president of the institute. “This is such a people-oriented company. It is very different than buying oil reserves.”

While GM and Hughes spokesmen declined to say how much of the incentive plan will go to top management, Fredrickson said: “The plan is tilted toward top management, of course. It is an inverted pyramid.”