Executive Compensation
American CEOs Earn Millions for Retirement
Carol Hymowitz and Margaret Collins, “CEO Pension
Benefits: Bigger Than the Pay Advantage?” Bloomberg
BusinessWeek, January 8, 2015 (Links to an external
site.)Links to an external site..
In 2013 CEO compensation at the nation’s largest companies grew
to 204 times higher than the salary of the average worker, a 20
percent increase since 2009. But the enormous wages paid to
American executives is far from the only financial perk they
receive. Along with inflated salaries, CEOs also enjoy lucrative
retirement plans that can see them net tens of millions at the end
of their careers.
For instance, Gregg Steinhafel recently stepped down as CEO of
Target following a massive data breach in May 2014. Despite his
managerial errors, however, Steinhafel left the company with a
retirement plan valued at a whopping $47 million. He particularly
benefited from a deferred compensation plan that guaranteed 12
percent annual interest on any paychecks he didn’t immediately
deposit. By the time Steinhafel cashed out, he had put away nearly
$10 million in deferred salary, which had accrued just as much
value in interest. A further $27 million came from a combined
pension plan for top executives along with an additional $11
million in severance and stock options for the 59-year-old.
Meanwhile, only Target employees who work more than 1,000 hours
a year are eligible to save in its 401(K) plan. The retailer’s
31,000 staffers who participate in the program received an annual
benefit of $4,000 in 2013. That’s a pittance compared to the plush
pension programs extended to executives. Some executives are even
offered supplemental executive retirement plans, or SERPs, that
calculate pension payouts by multiplying the person’s total years
of service with their average pay over the last five years. Many
more offer deferred compensation plans like Target, although the
retailer says it has since lowered its original 12 percent interest
rate. All these options allow executives to avoid the caps that
make it impossible for regular workers to collect as much money
from their employer. In fact, many companies are outsourcing
responsibility of their employees’ retirement plans to financial
services firms, which we explore in depth in another abstract in
this newsletter.
Questions:
1. Should executives be rewarded when they retire after
errors on their watch? Explain
2. Should Boards of Directors be more vigilant before
agreeing to executive contracts? Explain
