Many Chiefs Are Retaining Extra Benefits in Retirement
By DAVID LEONHARDT and GERALDINE FABRIKANT
The New York Times
September 11, 2002
Often described as a model for chief executives, John F. Welch Jr.
appears to have also created the model employment contract.
The contract that Mr. Welch signed in 1996 as chief executive of
General Electric was full of benefits that continue to flow to him in
retirement. It quickly became a template for other executives to use
to negotiate their own contracts, people in the field of executive pay say.
So, like Mr. Welch, many retired chief executives of large companies
now enjoy retirement benefits like free lifetime use of a company office
and secretary and frequent access to a company plane. The executives
typically receive the benefits in exchange for serving as consultants to
their companies, the companies say.
For John H. Bryan, Sara Lee's former chief executive,
the company has agreed to pay for a car and driver through 2008,
office space through 2009 and two administrative assistants through 2011.
Mr. Bryan, who retired as chief executive in 2000, has a consulting agreement with
Sara Lee that runs through 2009.
AOL Time Warner is paying Gerald M. Levin, its former chief,
who is now an adviser to the company, $1 million a year and providing him with
office space in or near AOL's Rockefeller Center corporate offices, according
to a report by the Corporate Library, a corporate-governance
watchdog group.
And Hugh L. McColl Jr., who retired from Bank of America
in April 2001, has the use of an office, administrative support and, for up to 150
hours a year, a company plane, according to Executive Compensation Advisory
Services, a research company in Alexandria, Va.
Some details of Mr. Welch's benefits became public last week in
a divorce court filing by his wife, Jane, who is seeking additional money to
maintain her standard of living. They include courtside seats at the United
States Open, satellite TV at his four homes and the use of a
G.E.-owned apartment on Central Park West, in addition to paying
for laundry, wine, newspapers and other items associated with the
apartment.
Some investors and corporate-governance experts have criticized
the benefits, calling them another sign that company boards too often
choose the welfare of executives over that of shareholders.
Once executives retire, they should pay for their expenses with the millions of
dollars they received in salary, bonus and stock, rather than using
company money, the critics say.
The continued provision of these executive benefits "is the final futility
of the American board as an institution capable of protecting
shareholders," said Robert A. G. Monks, a longtime activist shareholder
and an executive at the Corporate Library.
Company officials have defended these benefits as an important
part of paying their top executives. Although chief executives of big
companies rarely switch jobs, officials say the benefits ensure that
executives will remain loyal to their companies even after they have left.
Mrs. Welch's filing provided a rare detailed look at executives' retirement
because securities laws require that companies describe benefits
only in general terms.
Companies must disclose the kind of benefits - like transportation or
administrative support - that they will give their top five executives in
retirement, said Scott Olsen, the leader of the executive compensation
unit at Towers Perrin, a consulting firm. Companies do not need to cite
the value of the benefits, however, or the specific form of transportation, for example.
G.E.'s 2001 proxy statement said the company would provide
Mr. Welch with "continued lifetime access to company facilities
and services comparable to those which are currently made available to
him by the company." After retiring last year, he remains a consultant to the
company.
There was very similar language in the contract of Michael R. Bonsignore,
the former chief executive of Honeywell International, a
manufacturer that almost merged with General Electric,
said Judith Fischer, managing director of Executive Compensation Advisory Services.
After Mr. Bonsignore agreed to cancel two years on his contract,
he received an early-retirement package that included lifetime access to
company services that were comparable to those he had as the chief executive.
The benefits included office and clerical support, executive
transportation and security and financial planning, Ms. Fischer said.
Spokesmen for Honeywell and Sara Lee could not be reached for comment late yesterday.
A spokesman for Bank of America declined to comment on Mr. McColl's contract.
A spokesman for AOL said that the company weighed a number of considerations
and decided that Mr. Levin's agreement was appropriate.
Retirement perquisites became more popular at the same time that
executive pay was soaring and many stocks were gaining 20 percent in
value every year. In recent months, with many stocks far below their
peaks and a few big-name companies collapsing in scandals, some policy
makers and investors have lobbied boards to reduce executive pay.
Some boards do appear to have become tougher when negotiating
the severance packages of executives who were seen to have failed.
Directors at Tyco International forced Mark H. Swartz,
its former chief financial officer, to forfeit $91 million in severance pay this summer, for
example. Yesterday, Worldcom's board discussed whether it could
alter a severance agreement previously signed with Bernard J. Ebbers, the
company's former chief executive.
But boards have not changed the way they design contracts for new executives
and they are continuing to provide the same retirement and
severance benefits, lawyers and consultants say.
"I don't think there are any changes in the negotiations over severance
packages," said Robert J. Stucker, a lawyer at Vedder, Price, Kaufman
& Kammholz in Chicago, who represents executives during contract talks.
"They're still pretty much the same."
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