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Pensions For Execs, Shaft For Workers

Wed, 30 Apr 2003 08:46:31 -0700

 

Pensions For Execs, Shaft For Workers

 

By Arianna Huffington

 

Now that the war in Iraq has been declared officially over, can the media

please put aside their preoccupation with Scott Peterson's new hairstyle

and focus their attention on the sputtering U.S. economy? And in a week

when even Fortune, the corporate playbook, has adorned its cover with a

CEO with a pig's head and the title " Oink! CEO Pay Is Still Out Of

Control, " how about starting with the guys running corporate America? They

have, after all, in the course of the last year gone from American Idols

to America's Most Wanted, the most stunning transformation since Ozzy

Osbourne morphed from a bat-chomping satanic rocker into America's

cuddliest dad.

 

But no matter how battered their reputations may be, they still appear

determined to rescue themselves instead of their sinking ships. For

today's captains of industry, the maxim in a crisis seems to be: " To hell

with the women and children -- save the lifeboats for us! "

 

Take American Airlines. While preparing to make a rough landing in

bankruptcy court, executives at the dead broke carrier extracted from

workers $1.62 billion in wage and benefit concessions the bosses claimed

were needed to keep American aloft. At the same time, the execs secretly

safeguarded themselves with a glittering array of golden parachutes,

including massive cash bonuses and a $41-million trust fund to guarantee

their pensions should the airline crash and burn.

 

Even after the secret escape plan was revealed and all hell broke loose,

the company held fast to its priorities. It canceled the cash bonuses. It

tossed CEO Don Carty onto the tarmac. But it refused to relinquish the

fund protecting its execs' nest eggs.

 

In the end, the executives kept their cushy trust fund while the workers

were forced to go along with a deal that will lead to thousands of

lay-offs and pay cuts of between 15 and 21 percent. I guess in today's

business world, that's what amounts to a compromise.

 

Besides making one reach for the nearest airsickness bag, the American

Airlines debacle highlights the growing disparity between the ways

corporate America is preparing for the golden years of its executives and

its rank and file employees.

 

In the clubby confines of America's boardrooms, the sky is the limit.

Compensation committees are working overtime coming up with ever more

creative -- and devious -- ways to boost the earnings of top executives.

And super-charged pension plans are the hot new trend.

 

Among the gimmicks being used to goose the value of these plans is an

accounting scheme that can dramatically increase a CEO's retirement

windfall by adding phantom years -- even phantom decades -- of service to

the exec's pension. In theory, it works the same way as those jailhouse

rules that reward a model prisoner with time off for good behavior -- only

these guys get rewarded no matter how many employees or shareholders

they've knifed in the back with a homemade shiv.

 

Thanks to this latest innovation in corporate accounting, Leo Mullin,

Delta Airlines' CEO, has had an additional 22 years of service tacked on

to the less than six years he's actually worked for the company, while US

Air's former CEO Stephen Wolf was given credit for 24 years he didn't

really put in. And this scam isn't reserved for the high-flyers of the

airline industry. When John Snow left CSX Railroad to become Treasury

Secretary, he was given credit for having put in 44 years at the firm,

even though he'd actually punched a time clock there for 25 -- a little

fun with numbers that helped him walk away with a cool $33 million in

pension booty.

 

Corporate directors, who have come under increasing fire from shareholders

for approving excessive pay packages for high-level executives, appreciate

the fact that these pension plan adjustments allow them to fly under the

radar while continuing to funnel millions to CEOs. Unlike salaries and

bonuses, which are regularly reported in the business press, the details

of executive pension plans are usually hidden away in the extra fine print

of a company's SEC filings.

 

And CEOs love that pension plan payouts come with none of those annoying

tied-to-performance strings attached. US Air's Wolf, for instance, made

off with a $15 million pension cash-out just six months before the company

filed for bankruptcy. Richard Brown, former CEO of Electronic Data

Systems, was rewarded for overseeing a 62 percent drop in share price --

and steering the firm into an SEC investigation -- with a pension plan

that will pay him $1.6 million a year for life. And Treasury Secretary

Snow's $33 million pension prize came despite the fact that his company's

stock underperformed its competitors' by two-thirds over the last 11 years

of his reign.

 

The picture is far bleaker for those down on the factory floor or crammed

inside an office cubicle, where ordinary workers are seeing their pension

plans slashed or eliminated altogether.

 

Less than half of those currently employed in the private sector have any

kind of pension coverage. And 40 percent of those companies that do offer

pension plans are exploring the possibility of reducing benefits.

Companies are also cutting back on matching contributions to their

employees' 401(k) accounts. Some, like Ford, Goodyear Tire, and Charles

Schwab, have decided to completely do away with matching contributions.

They probably need the extra cash for their executives.

 

There is also a major push underway, spearheaded by the Bush

administration, to allow companies to switch their existing traditional,

defined benefits pension plans to so-called cash balance plans, which

could lead to a serious loss in benefits for older workers.

 

And even those workers who are able to hang on to their defined benefits

pensions can't rest easy: it turns out that the vast majority of corporate

pension funds are critically underfunded. In fact, of the 343 S & P 500

companies that offer traditional pension plans, close to 90 percent of

them are running a deficit. And we're not talking about being a few

dollars short. General Motor's pension plan is $25.4 billion in the red

while Ford's has a shortfall of $15.6 billion. All told, the S & P companies

are $206 billion in the hole; that's a shift of $457 billion since 1999

when the same pension funds had a collective surplus of $251 billion.

 

In just a few short years, the nest eggs of the American worker have gone

from sunny side up to seriously scrambled.

 

In an effort to level the lopsided pension playing field, Rep. Bernie

Sanders (I-Vt) and Rep. George Miller (D-Calif), along with 124

co-sponsors, have introduced legislation that would make it harder for

companies to force older workers to switch to cash-balance pension plans.

To drive his point home, Sanders showed how such a conversion would affect

the pensions of his fellow Congressmen. Denny Hastert, for instance, would

see his $540,000 lump sum benefit shrink to $164,000. And Tom DeLay's

retirement pay-out would be cut by 60 percent, shriveling from roughly

$608,000 to $251,000.

 

" If members of Congress think that cash-balance payments are good for

American workers, " declared Sanders, " then they must believe that

cash-balance pensions are good for themselves. "

 

I couldn't agree more. And the same goes for those pension-protecting

executives at American Airlines. If their future is worth safeguarding,

then so is their workers' present. Just think how many jobs the $41

million they put into that trust fund could save.

 

------

 

Arianna Huffington is the author of " Pigs at the Trough: How

Corporate Greed and Political Corruption are Undermining

America. " For information on the book, visit

www.PigsAtTheTrough.com

 

If you have questions or comments, contact Arianna at

arianna

 

To /, please visit

www.ariannaonline.com/columns/maillist.html

 

 

 

 

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