Finance: A clear look at executive pensions
Disclosures under new SEC rules might provide the new "Oh,
wow" factor for investors.
By Kathy Kristof, Los Angeles Times
Minneapolis Star Tribune
Sunday, August 6, 2006
Investors might soon be going ballistic over executive
pensions, rather than executive pay. The Securities and
Exchange Commission (SEC) voted last week to force companies
to reveal more information about how top executives are
compensated, including salaries and perks.
But what's most likely to shock investors are pension and
deferred-compensation accruals that will appear for the
first time in readable form in next year's proxy statements,
some experts say.
"Instead of finding out about all this stuff years later
when someone retires, we are instantly going to know the
'holy cow' factor" of pension promises to executives, said
Joshua Lurie, vice president of executive compensation and
business development at
Salary.com in Waltham, Mass.
As pension programs for rank-and-file workers are being
trimmed to cut corporate expenses, hefty executive pensions
have become a hot-button issue with some activist investors.
Under SEC rules, companies must state whether executives
have a pension and what the plan would pay for various
compensation levels and years of service.
But the disclosure charts in company documents are so
nebulous that only an actuary can figure out how much
specific executives would get in real numbers. And even
then, the figures have mostly been estimates because there
hasn't been enough information provided to be precise.
The new SEC rules, which take effect in December, require
that any money accruing to an executive's pension be added
into annual compensation figures in the yearly proxy
statement sent to shareholders. In addition, companies must
provide a second set of charts that will reveal precisely
how much each of their five most highly compensated officers
have accumulated in their individual pension and
In many cases, those numbers will run into the tens of
millions of dollars, predicted Patrick McGurn, executive
vice president of Institutional Shareholder Services, a firm
that provides guidance on corporate governance issues to big
"That's going to be the area that produces the
stunned-silence moments," McGurn said. "Those numbers could
To be sure, many or most of the large pension-benefit
commitments will have been accumulated by executives over
time. In some cases, however, companies that want to
recruit an executive promise that individual faster pension
vesting, said David Leach, a compensation consultant with
ECG Advisors in Los Angeles.
While most people earn one year of pension credit for each
year worked, some executives get two -- or more.
"There could be an 'oh, wow' factor with some of those
accruals," Leach said.
The pension charts also might clarify how much -- or how
little -- of executive compensation truly is
performance-based, said Ted White, a consultant to the
Council of Institutional Investors, a group of big pension
Although many firms have maintained that double-digit yearly
percentage gains in executive pay have been tied directly to
key measures of corporate performance, such as earnings
growth, academic studies have found the opposite to be true.
Now that pension information will be disclosed clearly, "I
think there is going to be more recognition that, when half
of the [compensation] value that's accrued during the year
is for the pension, there's no performance element here,"
"This is not about creating value" for shareholders because
of smart business moves by top executives, White said. "The
pension accrues if the executive is simply alive."
E-mail Kathy Kristof at