(The AFL-CIO issued the following news release on April 14.)
WASHINGTON, D.C. — The new AFL-CIO Executive PayWatch website (www.paywatch.org) unveils an egregious form of risk-free CEO pay utilized by many Fortune 1000 companies — excessive executive pensions. At the same time workers’ retirement savings have suffered through the worst stock market decline since the Great Depression, executives are receiving extraordinary retirement benefits not available to regular workers.
“At a time of mass layoffs and loss of retirement benefits for American workers, it’s outrageous that corporate executives receive sweetheart retirement deals that undermine the goal of pay for performance,” said Richard Trumka, AFL-CIO Secretary-Treasurer. “If you promise CEOs millions in pension benefits guaranteed for the rest of their lives, what do they care if their company’s share prices have fallen.”
Launched in 1997, the PayWatch website annually discloses executive pay packages for CEOs at top companies and exposes corporate governance abuses.
A shareholder backlash is brewing against excessive compensation packages for departing CEOs. So far this year, a majority of shareholders voted to require shareholder approval of executive severance agreements at Tyco, Alcoa, and Hewlett Packard. These golden parachutes can reward underperformance leading up to a CEO’s departure and are not justified given already high levels of executive pay and retirement benefits.
After the AFL-CIO filed shareholder proposals asking for a vote on executive retirement plans, General Electric and Coca Cola agreed to eliminate special retirement plans for their top executives. At GE, top executives received above-market interest rates guaranteed between 10 and 14 percent on their deferred compensation. Coke executives participated in a Key Executive Retirement Plan and two received credit for 10 years of pension service not actually worked.
Shareholder proposals calling for a vote on extraordinary executive retirement benefits will go to a vote later this year at Wal Mart, US Bancorp, Sears Roebuck, Exelon, and Boeing. These pension plans are often overlooked by shareholders, poorly disclosed and almost never put up for a vote. The new PayWatch website exposes how these executive retirement plans work through 15 case studies of companies including those where shareholder proposals have been introduced on the issue.
Executives are receiving preferential treatment for their retirement savings through the use of Nonqualified Deferred Compensation Plans. Under these plans that are similar to 401(k) plans, executives may contribute up to 100 percent of their pay and sometimes receive guaranteed above-market interest rates. Worker 401(k) accounts meanwhile are subject to stock market risk and may hold a significant percentage of their employers’ own stock.
Supplemental executive retirement plans generally promise definedbenefit pension for executives and other highly compensated employees. In contrast, only 19 percent of workers are covered by a defined benefit pension plan. Companies often enhance their executives’ pension benefits by giving executives unearned years of service credit or preferential benefit formulas over what other workers receive.
The new PayWatch website also features the new Web game “Pick-a-Pension.” Visitors can learn the pensions of CEOs and determine how much that retirement package would cover if used instead for health care costs for working families, luxury vacations or unemployment benefits.
Since its launch six years ago, more than 2 million people have visited the PayWatch website including more than 400,000 in 2002.
The AFL-CIO is the umbrella organization for America’s unions, representing more than 13 million working men and women around the nation. Union sponsored pension and benefit funds have approximately $400 billion in assets and are a leading voice for corporate governance reform in the capital markets.