A Pension to Retire For:
$158.5 Million Plus

AT&T CEO Whitacre Gets Big Reward for Performance;
Well-Earned or 'Egregious'?

DIONNE SEARCEY / Wall Street Journal 27apr2007

Edward Whitacre Jr. turned AT&T Inc. into the largest telecommunications company in the world by market capitalization, making acquisition after acquisition. The company's share price has soared nearly 50% in the past year alone, leaving many rivals in the dust.

And when the 65-year-old executive steps down, he stands to rank with the corporate elite in another fashion: His retirement payout will be among the top pension packages in the country, weighing in at $158.5 million.

Mr. Whitacre's contract extends through spring 2008, making his retirement imminent. Some investors are hoping the company will shed light on when he will be stepping down at an annual shareholders' meeting in San Antonio today. Analysts say his likely successor is his well-respected lieutenant, Randall Stephenson, AT&T's chief operating officer.

In addition to his $158.5 million pension package, Mr. Whitacre in retirement will have $24,000 in annual automobile benefits, $6,500 in "home security" each year and access to AT&T's corporate jet for 10 hours a month, according to AT&T's proxy filing with the Securities and Exchange Commission.

The Texan and his family will also receive free health insurance for life. The company will pick up the tab for taxes on most of these benefits. And he will be paid just over $1 million a year for three years for work as a consultant to the company during his retirement. For that period of time he will also receive $25,000 to cover his country-club fees.

Mr. Whitacre's retirement package ranks second in the U.S. among those on file with the SEC as of mid-April, according to the Corporate Library, a Maine-based research firm that tracks executive salaries and corporate governance, though throughout history there have been far larger payouts. The firm, which advocates responsible corporate governance, offered its findings after analyzing 1,168 proxy statements filed this year.

Topping the list is Richard Handler, chief executive of Jefferies Group Inc., whose retirement package is valued at a total of nearly $202 million. Nearly all of that sum is deferred compensation.

A spokesman for Jefferies says that Mr. Handler has been at Jefferies for 17 years and that the company's stock has appreciated more than 400% since Mr. Handler took a role in leading the firm in 2000. He said Mr. Handler's deferred compensation is subject to market risk.

While lavish retirement packages often come under attack by shareholders and lower-level employees, criticism of Mr. Whitacre has been muted, mainly because AT&T's share price has performed well. Unions in the sector have recently remained quiet about the payout, focusing instead on CEOs whose companies didn't perform the way AT&T did, such as Verizon Communications Inc.

"Ed Whitacre's pay and pension reflect his position as one of the longest-serving, most successful CEOs in corporate America," an AT&T spokesman said. "During his tenure as CEO, AT&T has outperformed its peers in delivering value to stockholders, and Mr. Whitacre has positioned the company to continue to create stockholder value for many years to come."

Still, watchdog groups say his package is too much. "There is no excuse for this kind of excessive egregious compensation," said Alexandra Higgins, senior compensation analyst at the Corporate Library.

Mr. Whitacre's pension plan includes $73.8 million in nonqualified deferred compensation, $61 million from supplemental retirement income plans, $22.3 million from a supplemental executive-retirement plan, and $1.4 million from AT&T's defined benefit pension plan, according to AT&T's proxy filing.

Executive compensation will be on the minds of many during today's meeting. Up for a vote today is a shareholder proposal that would require the board to adopt a policy that stockholders be allowed a nonbinding vote on executive pay packages.

AT&T, which has $120 billion in revenue and more than 100 million customers, says Mr. Whitacre last year earned about $31.5 million in pay. The company defends his compensation package by pointing out that AT&T provided a 53% return to shareholders last year.

While Mr. Whitacre's package isn't drawing much fire, the same can't be said about Verizon CEO Ivan Seidenberg, who earned $21.3 million in total compensation last year, according to Verizon. Mr. Seidenberg stands to receive roughly $26.7 million, including deferred compensation, in retirement benefits should he step down.

Verizon's stock climbed about 24% in 2006 but is down roughly 4% from what it was five years ago. "Shareholders at AT&T have been better served than shareholders at Verizon," said Candice Johnson, a spokeswoman for the Communications Workers of America.

Verizon spokesman Peter Thonis says union criticism of pay for Mr. Seidenberg, who has been at the company 41 years, is tied to labor groups' efforts to unionize some sectors of Verizon. "They're motivated by one thing and one thing only -- by their restriction in not being able to organize parts of Verizon," Mr. Thonis says.

The AFL-CIO is trying to persuade shareholders to withhold votes for six directors at Verizon's annual meeting on May 3. While the union is targeting its efforts on Verizon this year, Daniel Pedrotty, a director in the AFL-CIO's office of investment, says he thinks Mr. Whitacre's retirement payout "is too much," but the union isn't planning any action against it.

Mr. Whitacre's pension package has been topped by others historically. The total retirement package of Lee Raymond, former chairman and CEO of Exxon Mobil Corp. came to about $351 million, according to the Corporate Library. An Exxon spokesman ticked off a list of Mr. Raymond's accomplishments as chief executive, including more than quadrupling the company's market capitalization.

Giant pension packages aren't an all-American phenomenon. In 2002, Percy Barnevik relinquished the chairmanship of Swedish investment group Investor AB amid controversy over his pension from Swiss industrial giant ABB Ltd. Mr. Barnevik agreed to leave the company, controlled by Sweden's Wallenberg family, because of allegations he improperly received a retirement payout from ABB of the equivalent of $87 million.

Mr. Whitacre has been at AT&T through all its incarnations for 43 years, starting as a low-level employee in the field. In his 17 years as CEO, he has orchestrated numerous takeovers, most recently culminating in the $67 billion acquisition of BellSouth Corp., which gave the company full control of Cingular Wireless.

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Edward Whitacre Jr.

IN THE MORE THAN 40 YEARS since Edward Whitacre began his career in the telecommunications business, the industry has reinvented itself many times over. His push for consolidation, just a decade after the breakup of the Bell monopoly, turned a regional phone carrier into the biggest communications company in the U.S. The modern AT&T has a market capitalization of $245 billion.

Nov. 4, 1941 — Edward E. Whitacre Jr. is born in Ennis, Texas, the son of a railroad engineer.

1963 — Whitacre joins Southwestern Bell Telephone Co. as a facility engineer in Lubbock, Texas.

1964 — Whitacre graduates from Texas Tech University with a bachelor's degree in industrial engineering.

1982 — He is appointed president of Southwestern Bell's Kansas division, which he guides through the breakup and sale of the Bell conglomerate.

Mid to late 1980s — Whitacre climbs the corporate ladder and is made president and chief operating officer of Regional Bell Operating Company, Southwestern Bell Corporation.

1990 — Whitacre becomes CEO of Southwestern Bell.

1994 — Whitacre changes Southwestern Bell’s name to SBC Communications, to connote a more global, diversified brand.

1996 — In a gathering with top executives in Ojai, Calif., Whitacre predicts that the future of telecom will be consolidation, and crafts a new strategy to transform the company through acquisitions.

Late 1990s — He takes his company from the smallest Bell to a leading regional player, acquiring Pacific Telesis, Ameritech and Southern New England Telecommunications.

2004 — Cingular, a joint venture between SBC and BellSouth, announces it will acquire AT&T Wireless for approximately $41 billion, making Cingular the largest wireless operator in the country.

2005 — SBC announces its plans to acquire AT&T for $16 billion, turning regional phone company SBC into a global communications giant.

2006 — AT&T receives federal consent to acquire BellSouth for $85 billion, gaining full control of Cingular Wireless and creating the largest phone company in the U.S.

Compiled by Jessica E. Vascellaro