In 1998, about half of all private-sector employers in the United States offered newly hired workers a defined-benefit pension for their retirement.
By 2015, that percentage dropped to just 5%, according to the consulting firm Willis Towers Watson.
Nearly all private-sector workers now make do with a 401(k) plan — and the average 401(k) balance is roughly $95,000, which comes nowhere close to what the typical American will require in their sunset years.
By the age of 65, experts say, someone making $75,000 annually should have at least eight times their annual salary socked away, or a minimum of $600,000.
Which brings us to Richard Smith, 57, the former chief executive of credit agency Equifax who is scheduled to testify before Congress on Tuesday about the security breach that exposed the personal information of about 145 million consumers to hackers.
Smith “retired” last week with a more than $18-million pension.
In other words, you may be looking over your shoulder for the rest of your financial life thanks to Equifax. The company’s former boss never has to work again.
And Smith’s not alone. Many CEOs of large companies have pensions coming their way as part of their compensation packages.
The Institute for Policy Studies estimates that the top 100 CEOs of Fortune 500 companies can expect an average pension check of $253,088 monthly.
Let’s underline that: Almost a quarter of a million dollars. Every month. For the rest of their lives.
“The optics of this can be pretty tough to explain,” said David F. Larcker, an accounting professor at Stanford University who studies executive compensation. “To the typical worker, this seems pretty unfair.”
With good reason. Aside from their gravy-train pension plans, most CEOs of big companies pull down an average $15.6 million a year in salary and stock options, according to the Economic Policy Institute. That’s a whopping 271 times what average workers make.
Why such a sweet deal? Obviously it’s no easy task running a major corporation, so a commensurately meaty paycheck is to be expected.
“If you talk to CEOs, and I do, they feel justified in what they’re getting,” said Robert Wiseman, associate dean of the Eli Broad College of Business at Michigan State University. “They feel they’re held to a higher performance standard than other employees.”
But that’s not the whole story. The bigger picture is that executive compensation is a rigged system, with all concerned focused on maintaining a status quo that keeps everyone’s pockets full.
It starts with the execs themselves, most of whom have high-power agents to negotiate the heftiest, most luxurious pay packages possible.
Seriously. CEOs have agents, just like movie stars and pro athletes. Is it any wonder they expect — and receive — first-class treatment?
On the other side of the fence are the boards of directors that ostensibly are looking out for shareholder interests and resisting these extravagant pay plans. But they hide behind consultants who routinely say that if you don’t offer gobs of money and a pension, you’ll lose your celebrity CEO to some other firm.
Wiseman said it’s not much of a stretch to call this “collusion.”
“The board gives the senior executives what they want, and in return the senior executives maintain pay levels for board members,” he said.
Equifax, for example, gives each board member an annual retainer of $80,000, plus up to $25,000 more for chairing a board committee, according to the company’s 2017 proxy statement.
They also get a one-time allotment of $175,000 worth of stock, along with $150,000 worth of additional shares annually, as well as reimbursement for “customary and usual expenses.” Most Equifax board members made close to $250,000 last year.
The bulk of Smith’s pension at Equifax comes from what’s known as a “supplemental executive retirement plan,” which is a way for companies to pack fat stacks of extra cash into an ordinary retirement program.
He also received an additional boost from being credited with serving 17 years at the company even though he really served 12. The intent was to compensate him for pension benefits he gave up when he departed his previous employer, General Electric.
This is called making an executive “whole,” because God forbid he’d be like the rest of us poor schmucks and have to forfeit certain benefits when moving from one workplace to another.
“If you’re forfeiting and someone wants to hire you, they have to make you whole,” said George Paulin, chairman of FW Cook, a leading executive-compensation consulting firm.
He said firms are focusing nowadays on performance-based stock grants, as well as those supplemental executive retirement plans, or SERPs, that allow a company to throw additional funds into a CEO’s 401(k).
“There are SERPs out there that are like a turbo charger for your car,” Paulin said of some executive retirement plans.
I’m not saying that the guy — and it’s typically a guy — in the corner office isn’t deserving of big bucks. There’s a lot of risk in running a company, and there should be reward.
What sizzles my bacon is the huge gap between what CEOs make compared with rank-and-file workers.
The Harvard Business Review published a study a few years ago showing that the average American CEO made 354 times what ordinary workers made — significantly more than the Economic Policy Institute’s calculation of 271 times.
The average German CEO, meanwhile, made 147 times what workers made. The average British CEO made 84 times more. The average Japanese CEO made 67 times more.
I’m also a big fan of leading by example. Thus, lawmakers eager to reshape the U.S. healthcare system should be required to have the same coverage as everyone else.
By the same token, CEOs should have the same retirement plans as their subordinates. If they feel like a 401(k) with limited annual contributions doesn’t provide sufficient security, well, get in line, bub.
“This whole business of treating executives like rock stars is completely out of kilter,” said David Lewin, a professor at the UCLA Anderson School of Management. “It just pushes us further down the road of inequity.”
And unlike the boss, most of us won’t see a quarter-mil in monthly pension payments at the end of the line.
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