Pension values pump up Georgia CEO pay

(Company/CEO/2014 compensation/change from 2013)

Coca-Cola: Muhtar Kent, $25.2 million, up 24 percent

Aflac: Dan Amos, $15.5 million, down 17 percent

Southern Co.: Thomas Fanning, $11.5 million, up 36 percent

Coca-Cola Enterprises: John Brock, $11.3 million, down 34 percent

AGCO: Martin Richenhagen, $10.7 million, down 9 percent

Genuine Parts: Thomas Gallagher, $10.1 million, up 116 percent

NCR Corp.: William Nuti, $9.3 million, down 17 percent

SunTrust Banks: William H. Rogers, $9.2 million, up 55 percent

UPS: David Abney, $8.4 million, up 105 percent

PulteGroup: Richard J. Dugas, $7.7 million, down 45 percent

Rock-Tenn: Steven Voorhees, $6.8 million, up 95 percent

Asbury Automotive: Craig T. Monaghan, $4.7 million, down 2 percent

The rising cost of executive pensions helped drive up chief executive compensation at many of Georgia’s biggest companies last year, according to their disclosures to investors.

An Atlanta Journal-Constitution analysis of company filings showed that, on average, CEO pay packages rose 5 percent last year, to $10.9 million. The AJC looked at proxy statements recently filed with the U.S. Securities and Exchange Commission by 12 Georgia companies on the Fortune 500 list, which ranks publicly-traded companies by revenue.

Half the Georgia CEO group saw cuts in their total compensation, while half had gains.

Nationally, too few companies have filed their proxies so far to know whether CEO pay was up or down last year, said Aaron Boyd, director of governance research at Equilar, an executive pay data firm.

But it’s safe to say corporate chiefs last year didn’t see the big pay raises of recent years, he added. The high value of the dollar overseas slowed profit growth for exporters and multinational companies and likely put a damper on raises, he said. Likewise, many boards of directors set tougher performance targets for top executives.

“There’s definitely been a bit of a pull-back,” he said.

While the Georgia CEO group saw a modest pay raise as a whole, there was much variation in the pay packages, which include both cash payments like salaries and bonuses as well as the value of long-term awards such as stock or pensions that the executive may not collect until many years later.

The deepest cut was PulteGroup CEO Richard Dugas’ 45 percent decline, to $7.7 million, mostly due to a smaller bonus. The homebuilder moved its headquarters to Atlanta last year.

The highest gain was Genuine Parts CEO Thomas Gallagher’s 116 percent jump, to $10.1 million. Two others’ pay roughly doubled last year after they were promoted to CEO. UPS Chief David Abney got a 105 percent boost, to $8.4 million. Rock-Tenn CEO Steven Voorhees got $6.8 million last year, a 95 percent raise.

Pension differences

Most of the apparent increases last year, however, were tied to higher pension costs. Companies projected they would have to spend millions of dollars more someday on their top executives’ pensions because of lower expected investment earnings and new projections that retirees would live longer.

Those higher costs, based on estimates each year of the accumulated value of the executives’ pensions, were reported as part of their total compensation.

In recent years, most of those same companies retreated from providing traditional pension benefits for their rank-and-file employees — especially after the 2008 financial crisis helped drive up the cost of retirement plans for many firms.

At least seven of the dozen Georgia companies examined by the AJC — Coca-Cola, Aflac, AGCO, Genuine Parts, NCR Corp., SunTrust Banks and Rock-Tenn — have taken measures to reduce pension costs for regular employees, such as freezing employees’ retirement benefits, switching to cheaper plans, or closing their pension plans to new employees.

Most continue to offer lucrative retirement benefits to their CEOs and other top executives through separate pension plans. The estimated costs of those CEO’s pensions rose significantly last year, often by millions of dollars.

Without a $7.1 million increase in pension value, Coca-Cola CEO Muhtar Kent’s 24 percent raise would have disappeared. His total compensation: $25.2 million. Aflac CEO Dan Amos’ 17 percent pay cut, to $15.5 million, would have been bigger without a $6.8 million pension gain.

Likewise, Gallagher’s pay package from Genuine Parts more than doubled mostly because of a $5 million increase in his retirement benefits.

Coca-Cola switched employees to a cheaper pension in 2010. Aflac closed its rank-and-file pension to new hires in 2013 and its executive pension to new hires in January. Genuine Parts reduced pension benefits for rank-and-file employees in 2008 and froze them completely for most employees and executives in 2013.

“You basically could have retired on that date,” said Sid Jones, Genuine Parts’ head of investor relations. The company froze pensions as part of a move to make costs more predictable because “it’s a very difficult cost to control,” he said. Instead, the company now makes bigger contributions to employees’ 401(k)-style retirement accounts.

Genuine Parts reduced but didn’t freeze the benefits paid by a separate pension plan for top executives, Jones said.

Separate exec plans

Many companies set up separate executive pension plans, generally known as Supplemental Executive Retirement Plans, or SERPs, because their benefits are too large to qualify under IRS rules for the same tax-sheltered treatment as traditional pensions. Like Coca-Cola and Genuine Parts, some also reduced benefits in these executive plans, but others did not. Often, senior executives like CEOs are exempt from the cutbacks because their grandfathered in the older plans.

Companies defend the SERPs as a way to recruit and retain talented executives and provide the same type of benefits as traditional pensions. Executive pay experts say last year’s pension gains are mostly the result of outside factors — not increases in the CEOs’ retirement benefits.

For instance, actuaries recently added about two years to their estimates of how long retirees will live, which would increase pension costs, said Boyd. Another hit came last year from a drop in interest rates, which effectively increases a company’s cost to provide a pension because it earns less interest and must save more money.

“Those are things that are not in the companies’ control,” said Boyd.

But decisions to phase out employee pensions while keeping executives’ retirement plans going underlines the growing gulf between rank-and-file employees’ pay and top executives’ monumental pay packages, say critics.

“Fairness is totally in the eye of the beholder,” said Norman Stein, a law professor and pension law expert at Drexal University. “I don’t think it’s fair.”

Even when rank-and-file pension plans remain in force, the terms and assumptions are often “far less favorable” than those in executive plans, he said.

The assumptions that helped boost executives’ pension values last year could have real-world effects, he added, for CEOs close to retirement because many companies allow retiring executives to take their pension benefits as a lump sum that can total tens of millions of dollars.

“The lump sum value would increase substantially,” he said. “If someone’s about to retire and about to cash out, then the gains are real.”