Treasury Nominee to Get Big Pension
December 17, 2002
nytimes.com
By DAVID CAY JOHNSTON
When the CSX Corporation calculates pension benefits
for its chief executive, John W. Snow, nominated by President Bush last week to be
Treasury secretary, he will receive credit for 44 years of service to the company,
though he has worked there just 25.
Moreover, Mr. Snow's benefits will be based not just on his salary,
or even his salary and bonus, but also the value of 250,000 shares of stock the
CSX board gave him.
Getting credit for years not worked, and having virtually all compensation
counted toward pension benefits, are two of the newest trends in pay for
senior executives, said Judith Fischer, managing director of Executive
Compensation Advisory Services. She calls such deals "the eternal wealth
syndrome."
Though he has renounced his claim to about $15 million in severance benefits,
Mr. Snow's pension improvements mean he will collect $2.47 million
a year from CSX until he dies, according to company disclosures.
If confirmed as Treasury secretary, he will be paid $161,200 annually.
Among the chief executives receiving pension extras are
Gordon M. Bethune of Continental Airlines and Donald J. Carty of American Airlines.
So is Terrence Murray, chairman of Fleet Boston, the nation's seventh-largest bank.
As Treasury secretary, Mr. Snow would be in
the middle of pension policy-making as the subject
heats up in Washington. He would oversee new
pension rules announced by the Bush administration
last week that experts say can be expected to strip
benefits from older workers while
benefiting younger workers and saving companies money.
The new rules will make it easier for companies with
traditional defined-benefit pensions, which pay a monthly
sum to retirees for life, to shift to
so-called cash balance plans.
Under the traditional plans, pension benefits
are primarily based on a worker's final, and often
highest-paid, years of employment. The new plans,
by contrast, build benefits evenly over the course
of a worker's career. Cash balance plans are a boon to younger
workers, but critics say older workers could lose as much a third of their benefits.
As a matter of principle, President Bush declared at a conference
on retirement savings earlier this year, "What's fair on the top floor should be fair
on the shop floor." But an array of rules and customs have put
a distance between the retirement benefits of average workers and those of top
executives.
Most rank-and-file workers with traditional pensions receive
one year of credit for each year of service, and only their salary counts in determining
benefits. Many executives, including Mr. Snow, can also count their annual bonuses.
More unusual, according to Ms. Fischer, is the provision in Mr. Snow's
pension arrangement that takes into account the value of 250,000 shares of
stock he received from the company. That was intended to match his purchase
of an equal number of shares with his own money since 1999.
Mr. Snow declined comment on his pension arrangements.
In securities filings, CSX has said that the enhanced benefits - which it extends to
fewer than two dozen executives - are intended to ensure that they
"exert maximum efforts for the company's success" and remain with CSX until
retirement.
Experts say that in recent years, executives have sought to increase
their pensions in part to balance the risk that they will go unpaid in a corporate
failure. Unlike pensions for ordinary workers, executive plans are not
guaranteed by the government.
At CSX, Mr. Snow's pay and benefits have substantially increased
over the last five years, even though the performance of the company's stock has
trailed market indexes and other companies in the transportation industry.
According to CSX disclosures, his total compensation rose 69 percent, to
$10.1 million last year from just under $6 million in 1997.
The shares have fallen 53 percent from their 1997 high.
Meanwhile, some CSX retirees complain that their benefits have been cut back.
The company is being sued by 41 retired workers at the railroad's
Greenbrier hotel and country club in West Virginia, who say they
have been deprived of life insurance benefits.
James Hilton, a retired food storage supervisor, said that the
life insurance benefit was routinely paid until October 2001. Then, he said, "out of the
blue, CSX sent us this self-contradictory letter that says `we know you
thought you had this life insurance benefit, but really you did not.' "
The company maintains that the employees were mistaken and that
no such benefit ever existed.
In addition, CSX changed its policies, effective this coming Jan. 1,
so that newly hired employees will no longer be promised lifetime health care
benefits unless they work under a union contract providing such benefits.
Many companies have reduced or eliminated retiree health benefits as
profits shrink and health costs escalate.
Other companies have cited a variety of reasons in enhancing
their top executives' pension benefits.
Continental Airlines says that it is giving its chairman
and chief executive, Mr. Bethune, five years of pension credit for each year he works from
2000 through 2004 to compensate for the fact that he joined the company in
1994, late in his airline career. Mr. Carty of American Airlines received
one and a half years of pension credit for each year of work until 2000,
when he traded a raise for two years of credit for each year on the job.
Mr. Murray, the Fleet Boston chairman, will receive a pension
based on every dollar he earned during his three highest-paid years,
including stock, exercised stock options and $1.4 million in deferred
compensation he cashed out last year. Other Fleet executives have pensions
based on salary and bonus only. The bank's directors said they improved
Mr. Murray's benefits to reward him for Fleet Boston's growth under his leadership.
nytimes.com
Copyright The New York Times Company |
