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What’s Wrong With CEO Pay |
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Monday, 05 March 2007 |
AT&T CEO Edward E. Whitacre Jr. is entitled to a $5.38 million annual pension under AT&T’s Supplemental Retirement Income Plan. Under this executive-only plan, Whitacre’s target pension benefit was 75 percent of his average annual compensation. Future executives will have their target pension capped at 50 percent of compensation. [1]
Ed Whitacre’s estimated Annual Retirement Benefit: $5,494,107*
*Calculated by The Corporate Library for the AFL-CIO Executive PayWatch PayWatch.org.
On Dec. 31, 2004, AT&T replaced the Supplemental Retirement Income Plan with a new plan called the 2005 Supplemental Employee Retirement Plan. Under this new plan, Whitacre will receive a lump sum of $18.8 million on his retirement. [2] This lump sum is in addition to his expected $5.38 million annual pension benefit that he accrued before 2005.
Both the Supplemental Retirement Income Plan and the Supplemental Employee Retirement Plan are nonqualified plans that are only offered to a select group of highly compensated AT&T executives. Regular management employees participate in AT&T’s Pension Benefit Plan. Under this plan, Whitacre’s expected annual pension benefit after 44 years of service is $113,312. [3]
In 1997, AT&T (formerly named SBC Communications) converted its Pension Benefit Plan into a cash balance plan. Cash balance plans can reduce older workers’ pensions by 20 percent to 50 percent. Then on January 2005, the cash balance plan was converted back into a defined benefit plan. While existing managers will participate in the new defined benefit pension, many of them will not have many years to build up a benefit.[4]
Ironically, AT&T’s switch back to a traditional defined benefit pension for its management employees is expected to reduce the company’s pension liability and generate gains that will be recognized over time. With the announced change, AT&T said that it did not expect to make any pension contributions in 2005.[5] Meanwhile during AT&T’s pension flip-flop, the nonqualified plans for senior executives were unaffected.
Whitacre’s employment agreement also provides him with retirement perks, including lifetime health and welfare benefits, 10 hours per month of flight time on the corporate jet, office space and support staff and an automobile. In addition, Whitacre’s contract provides for an annual consulting fee equal to 50 percent of his salary for three years.[6]
1. 2006 AT&T proxy statement, pages 63-64.
2. 2006 AT&T proxy statement, pages 64-65.
3. 2006 AT&T proxy statement, pages 62-63.
4. “SBC Switches Pensions of 55,000,” The Wall Street Journal, Jan. 26, 2005.
5. “SBC Switches Pensions of 55,000,” The Wall Street Journal, Jan. 26, 2005.
6. Edward E. Whitacre Jr. Employment Agreement, Nov. 16, 2001.
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