G.E. Expenses for Ex-Chief Cited in Divorce Papers
The New York Times
September 6, 2002
By GERALDINE FABRIKANT
Papers filed yesterday in the divorce of John F. Welch Jr., the former
chief executive of General Electric, by his wife contend that G.E. covered
enormous living costs for them while he led the company and will continue to do
so for him for the rest of his life. The extent of these benefits
has never been disclosed by the company.
General Electric has reported that Mr. Welch's total compensation, including bonus
and salary, was $16.7 million in 2000, his last full year at the
company before his retirement last September. It has also said that
he will remain a consultant to the company on a retainer of $86,000 a year and
will continue to have access to G.E. services and facilities.
But it did not disclose the value and the details of his perquisites
as chief executive that will apparently continue through retirement. Along with
access to corporate aircraft, mentioned previously in company footnotes,
the documents filed by his wife, Jane, describe his use of a Manhattan
apartment owned by G.E., floor-level seats to the New York Knicks,
courtside seats at the U.S. Open, satellite TV at his four homes and all the costs
associated with the New York apartment, from wine and food to laundry,
toiletries and newspapers. The privileges, down to certain dining bills at
the restaurant Jean Georges in the Manhattan apartment building where he lives,
have continued even in retirement, the court papers indicate,
without placing a value on them.
Acclaimed for his ability to deliver higher profits year after year at G.E.,
Mr. Welch was one of the nation's most admired chief executives, and his
employment contract struck in 1996 reflected his company's impressive performance.
But people who specialize in corporate governance and compensation
said yesterday that they were taken aback by the long list of benefits, though
they had known about the corporate aircraft, for example.
Nell Minow, a governance expert and the editor of The Corporate Library,
once described Mr. Welch's employment contract as a model because it did
not appear to include a huge number of benefits. After being told about the filing,
she said yesterday: "I would have thought that perks like this had
to be disclosed, and they were not. There is really no justification to pay
for any living or traveling expenses at that level, particularly now that he is
in retirement."
Jonathan Macey, professor of law at Cornell University, said, "General Electric
was probably not legally obligated to disclose the details" of his
package.
Should the company have awarded him such benefits? "If you think he was
leaving and they induced him to stay with these perks," then perhaps it
was justified, Professor Macey said. "If it is handed to him by board cronies,
then it is not justified. But it is harder to make the argument that this
is illegal."
The G.E. proxy statement for 2001 states that the company will
provide Mr. Welch, who remains a consultant to the company, with "continued
lifetime access to company facilities and services comparable to those
which are currently made available to him by the company."
The company provides few details about what those services are.
The document did not list any personal use by Mr. Welch of corporate aircraft last
year, though it did quantify aircraft use by other executives. There is no mention
of sports tickets or restaurant meals or the G.E.-owned apartment
on Central Park West, which the court documents value at about $80,000 a month.
According to the court papers, the subsidized benefits include a car
and driver for the Welches, and the communications and computer equipment at
the Manhattan apartment and at their homes in Connecticut, Massachusetts
and Florida. G.E. pays for security personnel when the Welches travel
abroad.
Mrs. Welch states that G.E. was paying for V.I.P seating at Wimbledon,
a box at the Metropolitan Opera, a box at Red Sox games, a box at Yankee
games, four country club fees, security services in all four homes and limousine
services while traveling. Because of his relationship with G.E., Mr.
Welch and his wife also got discounts on diamonds and jewelry settings.
Gary Sheffer, a General Electric spokesman, pointed last night
to Mr. Welch's consulting agreement with G.E., which pays him at least $86,535
annually for his first 30 days of work, with a payment of $17,307 for every additional day.
The agreement, which has been widely disseminated, states that he
gets lifetime access to G.E. services and facilities. "The technical stuff is basic
business material that he needs as a consultant," Mr. Sheffer said.
Through an assistant, Mr. Welch declined to comment last night.
Mr. Sheffer said he could not confirm all the other expenses but that
"a lot of it goes back to Jack's consulting agreement, which was signed in 1996,
when the board asked him to stay on until he was 65 years old," he said.
"As part of that agreement, he got promised access to everything he had
had as chief executive after he left," Mr. Sheffer said.
As to tickets to Wimbledon, he said, "we broadcast them," referring to television
coverage by NBC, a unit of G.E. When his meals at Jean Georges
are for personal reasons, he pays, Mr. Sheffer said, quoting Mr. Welch's assistant.
The general reference to G.E. services is misleading, Ms. Minow said.
"It is appalling that one of the wealthiest men in America cannot write a
check for his own Knicks tickets," she said. "It is appalling to me that
Jack Welch's flowers are being paid for by retired firemen and teachers who
are the G.E. shareholders and don't know this is going on.
"The reason that executive compensation and employment contracts
are disclosed is so that investors know whether the interests of the executives
are aligned with those of shareholders and whether the board is doing its job,"
she continued. "In this case, based on what was publicly available, it
was impossible to tell that."
High living by chief executives on the company's payroll has become
a sore point for shareholders as the stock market has plunged. One prominent
example was the $17 million New York apartment that Vivendi Universal bought
and made available to Jean Marie Messier, who was recently ousted
as chief executive. Tyco shareholders recently learned that the company
forgave a $19 million loan to its former chief executive, , L. Dennis
Kozlowski, that was used to purchase a home in Florida.
General Electric's stock has been depressed amid concerns
about the economy and about its financial transparency. Last month, its new chief
executive, Jeffrey R. Immelt, said he would sell the apartment for his use that
is in the same building as Mr. Welch's and valued it at $15.2 million.
Jane Beasley Welch filed the papers about the Welches living arrangements
in Superior Court in Bridgeport, Conn., after the two failed to reach an
amicable divorce settlement. William Zabel, the partner at the law firm
of Shulte Roth & Zabel who is representing her, said that Mrs. Welch was
seeking additional support because her husband had canceled their joint
credit cards and had provided her with support of $35,000 a month, which
she accepted under protest and said was far below their previous standard of living.
Mrs. Welch, who has been married to Mr. Welch for 13 years, oversaw
their various properties and was involved in the living and financial
arrangements, her lawyer said.
Suzy Wetlaufer left her job as editor of the Harvard Business Review in
April after it was reported that she had begun a relationship with Mr. Welch.
The Welches then separated, two years after the expiration of their prenuptial
agreement, which provided some protection for his $900 million
fortune.
Though Mrs. Welch describes $126,820 a month in costs incurred by the
couple to maintain their lifestyle, the filing states that she is unable to
quantify the value of most items covered by General Electric or how much
Mr. Welch may contribute to those costs.
She provides an expert's assessment showing that the use
of General Electric's Boeing 737 aircraft is valued at $291,869 a month, or about $3.5
million a year.
The other significant figure is the $7.5 million that she says General Electric
paid in capital expenditures and furnishings for the couple's homes
over the course of their marriage. (The Welches personally spent $32.5 million
on those properties, the documents show.) At the time of the
separation, the couple were building a home in Connecticut, and the filing states
that several G.E. employees were on hand to assist in the design
and installation of the security, telephone and other systems.
Mr. Welch's employment contract, as filed with the Securities and Exchange Commission,
is a bit more expansive than the company's annual report
or proxy statement. In retirement, Mr. Welch gets access to company
"aircraft, cars, office, apartments and financial planning services" and he is to
be reimbursed for "travel and living expenses incurred in providing services to the
chief executive officer," it states. The benefits are "unconditional
and irrevocable" even if Mr. Welch is incapacitated, the contract said.
Graef Crystal, who specializes in corporate pay, said he was shocked that the
benefits were irrevocable.
"This is an indictment of G.E.'s board of directors," Mr. Crystal said
"This is the most appalling use of corporate assets. No one had any idea of the
magnitude of what the company had been giving him." He said that either the board
did not know about it or was not paying adequate attention.
Mr. Crystal said that Mr. Welch was paid exceedingly well and that
he is a wealthy man whose stock alone is worth about $900 million. Mr. Crystal
also said that Mr. Welch has a life insurance policy paid by the company and
a pension plan that pays more than $9 million a year.
Mr. Zabel said it is unclear who paid the taxes on the benefits described in the court documents.
Mr. Crystal said he believed that the dollar value of the benefits
should not be tax deductible to General Electric because there is no business
purpose to those expenditures.
"If Mr. Welch bears the taxes, they should be deductible unless there is a
direct business value to a particular event," Mr. Crystal said. "But if you
look at his New York apartment, why would that cost be a business expense to either party?"
Mr. Crystal said that he would like to see greater disclosure of executives' perquisites.
What passes for business spending is often a lifestyle
enhancement, he said.
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