By Theo Francis and Andrew Ackerman
Top U.S. executives get paid a lot to do their jobs. Now many
are also getting a big boost in what they will be paid after they
stop working.
Executive pensions are swelling at such companies as General
Electric Co., United Technologies Corp. and Coca-Cola Co. While a
significant chunk of the increase is the result of arcane pension
accounting around issues like low interest rates and longer
lifespans, the rest reflects very real improvements in the
executives' retirement prospects.
Pension gains averaged 8% of total compensation for top
executives at S&P 500 companies last year, up sharply from 3%
the year before, according to data from LogixData, which analyzes
SEC filings. But the gains are much larger for some executives,
totaling more than $1 million each for 176 executives at 89 large
companies that filed proxy statements through mid-March. For those
executives, pension gains averaged 30% of total pay.
The gains often don't represent new pay decisions by corporate
boards. Instead, they reflect the sometimes dramatic growth in
value of retirement promises made in the past. Nonetheless, they
are creating an optics problem for companies at a time when
executive-pay levels are under greater scrutiny from investors and
the public. Companies now face regular shareholder votes on their
pay practices that can be flash points for broader concerns,
leaving them sensitive about appearing too generous.
New mortality tables released last fall by the American Society
of Actuaries extended life expectancies by about two years. That,
as well as low year-end interest rates, helped push pension gains
higher than many companies had expected. The result is much higher
current values for plans with terms like guaranteed annual payouts,
which are no longer offered to most rank-and-file workers.
GE Chief Executive Jeff Immelt's compensation rose 88% last year
to $37.3 million. Meanwhile, excluding $18.4 million in pension
gains, his pay actually fell slightly to $18.9 million.
The company says about half of the pension increase came from
changes in its assumptions about interest rates and life span.
About $8.8 million, however, comes from an increase of nearly
$490,000 a year in the pension checks he stands to take home as his
pay has risen and he approaches 60 years old, the age at which top
GE executives can collect full pension benefits.
In all, Mr. Immelt's pension is valued at about $4.8 million a
year for life. The company puts its current value at about $70
million, up from around $52 million a year ago.
A GE spokesman said that much of the gain reflects accounting
considerations and that Mr. Immelt's recent salary increases
reflect balanced-pay practices and board approval of his
performance.
The SEC is particular about how companies report pay in their
proxy statements. There is a standard table that breaks out salary,
bonuses and pension gains, along with totals for the past three
years, and other details. GE, encouraging investors to overlook the
pension gains, added a final column to the table to show what top
executives' total pay would look like without them. The company
says investors find the presentation useful in making proxy voting
decisions.
Lockheed Martin is also asking investors to look past pension
gains when considering its executives' total pay.
At Lockheed Martin Corp., CEO Marillyn Hewson's total pay rose
34% to $33.7 million last year, with $15.8 million of that stemming
from pension gains. An extra column in the proxy statement's
compensation table strips out those gains, showing her pay up about
13% to $17.9 million.
Lockheed says that $5 million of the pension gains can be traced
to changes in interest rates and mortality assumptions. Most or all
of the remaining $10.8 million probably stems from increases in the
payments she would receive in retirement: about $2.3 million a year
now, up from about $1.6 million a year under last year's proxy
disclosure. Ms. Hewson's pay rose sharply with her ascent to CEO in
2013 and chairman last year, increasing her pension benefit
significantly.
Overall, the company's obligation for future pension benefits
for executives and other highly paid employees totaled $1.1 billion
last year, up from $1 billion at the end of 2013.
A Lockheed Martin spokesman said the company broke out a
nonpension compensation total in the proxy statement to provide
more context for pay.
Executive pensions generally don't consume the attention that
pensions for the rank and file do. For years, as costs of
traditional pension plans have risen amid low interest rates and
longer lifespans, big companies have been closing them to new
employees or even freezing benefits in place, often continuing with
only a 401(k) plan for all but the oldest workers.
Last June, Lockheed Martin told its nonunion employees that it
would stop reflecting salary increases in their pension benefits
starting next year, and that the benefits would stop growing with
additional years of work starting in 2020.
"It eliminates a lot of the variability that defined-benefit
pension plans can create in our cost structure," Chief Financial
Officer Bruce Tanner told investors during a Dec. 3 conference
presentation.
In 2011, GE stopped offering new employees traditional
defined-benefit pensions and replaced them with 401(k) plans. At
the time, Mr. Immelt cited recent market downturns and lower
interest rates as being among the reasons for the shift.
Write to Theo Francis at theo.francis@wsj.com and Andrew
Ackerman at andrew.ackerman@wsj.com
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