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US: AFL-CIO puts big CEO pensions under scope

by Edward IwataUSA Today
April 7th, 2006

Amid growing concern over a wave of cutbacks in corporate pension plans for employees, the CEOs of top U.S. companies would receive "golden pensions" that range from $2 million to $6.5 million a year, according to a study by the AFL-CIO union federation.

The study, "CEO Golden Years: The Top 25 Largest CEO Pensions," was done by the AFL-CIO and the Corporate Library, a corporate-governance research group.

Topping the list is Pfizer Chief Executive Hank McKinnell, whose estimated annual pension would be $6.5 million. No. 2 is recently retired ExxonMobil CEO Lee Raymond, also at $6.5 million. AT&T CEO Edward Whitacre ranked third at $5.5 million.

According to the AFL-CIO, 69% of Fortune 1,000 CEOs are covered by traditional defined-benefit plans, while 21% of private-sector workers are covered by the plans.

"CEOs have turned their pension plans into CEO wealth-creation devices," says AFL-CIO investment researcher Brandon Rees. "This undermines the goal of linking CEO pay to performance, and in fact rewards underperformance."

Shareholders and corporate governance experts have scrutinized executives' pay since the 1980s. Now they're looking more closely at what they believe to be exorbitant CEO pension plans.

The AFL-CIO study comes as the Securities and Exchange Commission is soliciting public comments by Monday on a proposed rule to require better disclosure of CEO compensation, including retirement pay.

The study found:

•If he wants, Pfizer CEO McKinnell could take a lump-sum pension check of $83 million, rather than yearly pension pay. Part of McKinnell's pension is based on stock grants, unlike other companies that base pensions on cash compensation, the AFL-CIO says.

Pfizer spokesman Paul Fitzhenry says that "Hank McKinnell has earned his pension benefits (over) 37 years of service to Pfizer as of the time of his retirement." Pfizer produced "outstanding shareholder returns" over several of those years.

In 2001, Pfizer's directors decided to no longer include stock grants in calculating pension pay, according to Fitzhenry.

•ExxonMobil's Raymond could choose to accept a lump-sum payment of $81 million. The AFL-CIO says his pension is much higher than other employees' because it's based on his bonuses.

ExxonMobil spokesman Russ Roberts says Raymond worked 43 years at the largest U.S. oil company and 12 years as CEO. "We're proud of the fact that we pay our employees well, they stay for quite a long time and have a good pension to show for it," he says.

•UnitedHealth Group CEO William McGuire will get $5 million a year upon retirement, a consulting agreement for three years, plus health benefits for him and his wife for the rest of their lives.

Spokesman Mark Lindsay says McGuire took over the then-troubled firm in the early 1990s and turned it into "what Fortune magazine has recognized as one of the most innovative and best-managed companies in America."

Its stock price has beaten the Standard & Poor's 500 and risen 1,060% since 1994, he says.

"That's a very clear record of superior performance," he says.

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