The Wall Street Journal ran a great piece in December about the huge disparity between the average worker's retirement plan and that of those working in the C-Suite. According to the Journal, 25% of the top executives at America's largest companies actually made money on their retirement plans in 2008. Did you? You're probably wondering right about now how they did it considering your 401(k) account probably dropped about 20% last year. It's simple - guaranteed returns. As if it's not enough that CEOs make 300 times more than the average worker, corporate boards also feel compelled to guarantee executives huge retirement packages. It's pure poppycock if you ask me. (Before you retire, read Five Retirement Questions Everyone Must Answer.)
One of the companies written about in the article was Comcast (Nasdaq:CMCSA), whose executive vice-president, Stephen Burke, made $7.4 million in interest in 2008 from his deferred compensation, which totaled $71 million at the end of 2008. Burke was able to do so well in an awful year because Comcast pays its executives 12% guaranteed interest on all deferred compensation. Two other executives in the company, the vice president and COO, had a combined pension increase of just under $5 million. I wonder how General Electric (NYSE:GE), its new joint venture partner, feels about this?
What a World
It amazes me that the issues surrounding executive compensation continue to focus solely on the banking industry just because it was the beneficiary of so much assistance. This is a gargantuan problem for investors across every industry. It's something that taints us all and I'll continue to bang my drum as long as corporate boards insist on feeding the pigs at the trough. There is no need for the government to allow this to go on, but it does. If you look more closely at Comcast, you'll see that Burke was able to defer a substantial chunk of his total compensation in 2008. Wouldn't it be nice for the rest of us to be able to put aside funds on which we will be guaranteed a 12% return? It sure would. (For more information on executive pay, check out Evaluating Executive Compensation.)
Workers Be Damned
The Journal article highlights the fact that while the Comcast fat cats were making 12% on their money in 2008, its own employees were collectively losing their shirts to the tune of $649 million, or 28% of their 401(k)s. While it's true that Comcast's plan has likely regained much of those losses, this is a matter of fairness. Compensation plans should benefit all or none, but not a select few. Rare are companies like Intel (Nasdaq:INTC), whose executives receive no special treatment in their deferred compensation plan. In 2008, its top four executives lost 35% in their deferred compensation plan, the exact same loss as the employees' 401(k) plan. Now that's more like it.
Other companies mentioned in this eye-opener of an article include Wal-Mart (NYSE:WMT), Bank of New York Mellon (NYSE:BK) and Illinois Tool Works (NYSE:ITW). All have sweetheart deals for their executives' deferred compensation plans. Having studied executive compensation for awhile, I'd be shocked if the number of S&P 500 companies offering guaranteed rates of return for its executives wasn't well above 50%. But then again, who ever said life was fair?
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