pensions fall short, CEOs fly high
Ford, GM, United
Airlines, Continental. They're just four of the companies struggling
with falling profits and pension problems as their executives get huge
At companies across the country, workers are
watching their pensions dwindle.
At UAL’s (UALAQ,
msgs) United Airlines, workers stand to lose more than $3
billion in promised benefits as the airline passes its pension
obligations on to the government.
Unfunded pension obligations at Ford (F,
msgs) have risen to a whopping $12.3 billion, and
General Motors (GM,
msgs) is looking at shortfalls of $7.5 billion.
In the executive suites of these companies, however, there's no pain
to be found. United Airlines chief executives John Creighton, Jr. and
Glenn Tilton collected $13.1 million in the two years leading up to
its 2002 bankruptcy.
And while the pension pit grows at Ford, chief executive William Clay
Ford Jr. has collected $53 million over the past three years. At GM,
G. Richard Wagoner Jr. got $40.7 million over that period.
It's no secret that corporate bigwigs have paid themselves handsomely
while stiffing their workers and sending jobs overseas. It's
particularly galling, though, to see these same executives locking in
their own lifetime of luxury while rolling the dice with their
workers' retirement years.
Separate and unequal pensions
Consider the case of Continental Airlines (CAL,
msgs). Last year, with Continental and other major airlines
facing massive losses and the threat of bankruptcy, outgoing
Continental chief Gordon Bethune took a $22 million lump-sum payment
from his retirement plan. At the same time, Continental's pension plan
is underfunded by $1.58 billion.
“That situation with Bethune just crystallizes the whole unfairness of
it all,” says Paul Hodgson, a senior research associate with The
Corporate Library, a Portland, Me. company that examines executive pay
and corporate governance issues for investors. “The amount that
(executives) have earned over the years would seem to be enough to
provide for their retirement, and the idea that you have to provide
retirement benefits worth 50% of their annual compensation is absurd.”
Pensions don't actually shrink unless a company files for bankruptcy
and passes pension obligations on to the government. Pfizer (PFE,
msgs) has a $2.98 billion pension plan shortfall, but $19.8
billion in cash. But seemingly healthy companies can be felled by
unexpected events, as United discovered after Sept. 11, 2001. GM has
$35.9 billion in cash on its books (much of it tied up in its
financial arm), but earlier this spring analysts speculated openly
about the likelihood of the automaker filing for bankruptcy
With help from Standard & Poor’s, we took a look at the 20 companies
currently running the most underfunded pension funds. We found that
the top brass at some of those firms have rewarded themselves with
retirement plans that promise millions of dollars in annual income for
the rest of their lives.
Here’s a look at some of the most glaring examples from a Standard &
Poor’s ranking of the 20 S&P 1500 companies whose pension plans are
most deeply in the red. (See the results in the table below).
| Pensions poor, CEOs rich
||Pension underfunding (billions)
||CEO pay, past three years* (millions)
||Total executive pay** (millions)
||Total as a percentage of underfunding
|Exxon Mobil (XOM,
|General Motors (GM,
|Delta Air Lines (DAL,
|Lockheed Martin (LMT,
|United Technologies (UTX,
|Dow Chemical (DOW,
|Procter & Gamble (PG,
*Includes salary, bonus, restricted stock
grants, "other" compensation
and S&P estimate of the value of options at the time they were
granted, using the Black Scholes model.
**Top five executives
Source: Standard & Poor's
Ford: Profits fall, CEO pay stays high
Ford takes top honors. Its $12.3 billion pension shortfall could
someday force rank-and-file Ford employees to accept pension checks
that are a fraction of what they've been promised.
But that didn’t stop Ford chief executive Bill Ford from collecting a
cool $19.9 million last year, according to Standard & Poor’s.
Collectively, the five top managers at Ford pulled down $105 million
over the last three years while the automaker’s performance
languished, making it harder for the company to fund pension promises
Like United Airlines, Delta Air Lines (DAL,
may wind up in bankruptcy. If so, that could mean the
federal government will have to pick up the tab for Delta’s pension
obligations just like at United Airlines -- all but assuring
retirement benefits will be dramatically cut.
Delta has the fifth-largest pension shortfall, at $5.3 billion. But
former chief executive Leo Mullin collected $23.5 million in the three
years before his departure as head of Delta two years ago.
Pensions suffer, in good times and bad
It's not just companies in troubled sectors like airlines and
automakers that have big pension shortfalls and fat executive
compensation. Energy companies are recording huge profits and
rewarding their chiefs while neglecting their future pensioners.
Exxon Mobil (XOM,
, for example, has the second biggest pension-fund
shortfall (Ford is first.) Exxon has an $11.5 billion hole in its
worker retirement plan. Yet the six top execs at the company took home
$196 million over the past three years. Exxon Chairman and Chief
Executive Lee Raymond pocketed $38.1 million last year.
All told, the top managers at the 20 companies with the biggest
pension shortfalls earned $1.9 billion in the past three years,
according to Standard & Poor’s.
At the same time, the deficits in their pension plans for the rank and
file mounted to massive $89 billion. That disconnect between
burgeoning pension deficits and rising executive pay has some
retirement plan experts scratching their heads.
They can (and do) take it with them
The excesses don’t stop with the sweet pay packages. Indeed, while
rank-and-file workers wonder if the red ink in their retirement plans
may mean they’ll spend their final years in the poor house, their
well-heeled execs are taking steps to assure they won’t.
Pfizer's $2.98 billion pension shortfall didn’t stop chairman and
chief executive Henry McKinnell from signing a juicy retirement plan
that will give him $6.5 million in annual retirement income, according
to the Corporate Library. It's not like McKinnell will enter
retirement short on cash. Pfizer has paid him $62.7 million over the
past three years, according to Standard & Poor’s.
has a $7.38 billion hole in its retirement plan. Yet
IBM chairman and chief executive Samuel Palmisano has a $4.1 million
annual pension, calculates the Corporate Library.
To be fair, these special executive pension plans -- often called
supplemental executive retirement plans, or SERP's -- don’t have the
same level of protection in bankruptcy enjoyed by retirement plans for
regular worker, says David Wasserstrum, director of the compensation
and benefits group for BDO Seidman, an accounting firm.
Even the safety net is in trouble
Executives are taking rich pay and retirement packages at a time when
the pension plans for rank-and-file workers are deep in the red. Our
nation’s private sector retirement plans are underfunded by $600
billion, according to Douglas Holtz-Eakin, director of the
Congressional Budget Office.
To make matters worse, the agency set up to take over bankrupt pension
plans from the private sector -- the Pension Benefit Guaranty
Corporation (PBGC) -- is itself broke, facing a $23.3 billion deficit.