Many Chiefs Are Retaining Extra Benefits in Retirement 
Based on GE's Welch 

DAVID LEONHARDT and GERALDINE FABRIKANT / NY Times 11sep02

[Also see: GE's Welch Got $16.7 Million - Wall Street Journal 12mar01]

Often described as a model for chief executives, John F. Welch Jr. appears to have also created the model employment contract.

The contract that Mr. Welch signed in 1996 as chief executive of General Electric was full of benefits that continue to flow to him in retirement. It quickly became a template for other executives to use to negotiate their own contracts, people in the field of executive pay say.

So, like Mr. Welch, many retired chief executives of large companies now enjoy retirement benefits like free lifetime use of a company office and secretary and frequent access to a company plane. The executives typically receive the benefits in exchange for serving as consultants to their companies, the companies say.

For John H. Bryan, Sara Lee's former chief executive, the company has agreed to pay for a car and driver through 2008, office space through 2009 and two administrative assistants through 2011. Mr. Bryan, who retired as chief executive in 2000, has a consulting agreement with Sara Lee that runs through 2009.

AOL Time Warner is paying Gerald M. Levin, its former chief, who is now an adviser to the company, $1 million a year and providing him with office space in or near AOL's Rockefeller Center corporate offices, according to a report by the Corporate Library, a corporate-governance watchdog group.

And Hugh L. McColl Jr., who retired from Bank of America in April 2001, has the use of an office, administrative support and, for up to 150 hours a year, a company plane, according to Executive Compensation Advisory Services, a research company in Alexandria, Va.

Some details of Mr. Welch's benefits became public last week in a divorce court filing by his wife, Jane, who is seeking additional money to maintain her standard of living. They include courtside seats at the United States Open, satellite TV at his four homes and the use of a G.E.-owned apartment on Central Park West, in addition to paying for laundry, wine, newspapers and other items associated with the apartment.

Some investors and corporate-governance experts have criticized the benefits, calling them another sign that company boards too often choose the welfare of executives over that of shareholders. Once executives retire, they should pay for their expenses with the millions of dollars they received in salary, bonus and stock, rather than using company money, the critics say.

The continued provision of these executive benefits "is the final futility of the American board as an institution capable of protecting shareholders," said Robert A. G. Monks, a longtime activist shareholder and an executive at the Corporate Library.

Company officials have defended these benefits as an important part of paying their top executives. Although chief executives of big companies rarely switch jobs, officials say the benefits ensure that executives will remain loyal to their companies even after they have left.

Mrs. Welch's filing provided a rare detailed look at executives' retirement because securities laws require that companies describe benefits only in general terms.

Companies must disclose the kind of benefits — like transportation or administrative support — that they will give their top five executives in retirement, said Scott Olsen, the leader of the executive compensation unit at Towers Perrin, a consulting firm. Companies do not need to cite the value of the benefits, however, or the specific form of transportation, for example.

G.E.'s 2001 proxy statement said the company would provide Mr. Welch with "continued lifetime access to company facilities and services comparable to those which are currently made available to him by the company." After retiring last year, he remains a consultant to the company.

There was very similar language in the contract of Michael R. Bonsignore, the former chief executive of Honeywell International, a manufacturer that almost merged with General Electric, said Judith Fischer, managing director of Executive Compensation Advisory Services.

After Mr. Bonsignore agreed to cancel two years on his contract, he received an early-retirement package that included lifetime access to company services that were comparable to those he had as the chief executive. The benefits included office and clerical support, executive transportation and security and financial planning, Ms. Fischer said.

Spokesmen for Honeywell and Sara Lee could not be reached for comment late yesterday.

A spokesman for Bank of America declined to comment on Mr. McColl's contract.

A spokesman for AOL said that the company weighed a number of considerations and decided that Mr. Levin's agreement was appropriate.

Retirement perquisites became more popular at the same time that executive pay was soaring and many stocks were gaining 20 percent in value every year. In recent months, with many stocks far below their peaks and a few big-name companies collapsing in scandals, some policy makers and investors have lobbied boards to reduce executive pay.

Some boards do appear to have become tougher when negotiating the severance packages of executives who were seen to have failed. Directors at Tyco International forced Mark H. Swartz, its former chief financial officer, to forfeit $91 million in severance pay this summer, for example. Yesterday, Worldcom's board discussed whether it could alter a severance agreement previously signed with Bernard J. Ebbers, the company's former chief executive.

But boards have not changed the way they design contracts for new executives and they are continuing to provide the same retirement and severance benefits, lawyers and consultants say.

"I don't think there are any changes in the negotiations over severance packages," said Robert J. Stucker, a lawyer at Vedder, Price, Kaufman & Kammholz in Chicago, who represents executives during contract talks. "They're still pretty much the same."

G.E. Perks Raise Issues About Taxes

GERALDINE FABRIKANT and DAVID CAY JOHNSTON / NY Times 9sep02

In the wake of documents that detail the long list of living expenses General Electric paid for John F. Welch Jr., its former chief, some corporate governance experts are asking why G.E. did not more fully disclose the information and who should pay the taxes on all these benefits.

The benefits were detailed in divorce papers that Mr. Welch's estranged wife, Jane Beasley Welch, filed in Superior Court in Bridgeport, Conn., on Thursday. They include a list of corporate perks including lifetime use of a palatial Manhattan apartment complete with wine, flowers, cook, housekeeper and other amenities, as well as access to General Electric's Boeing 737 jets, helicopters and a car and driver for Mr. Welch and his wife. Also included were tickets for the couple at a number of top sporting events and the opera.

What has bothered some experts is how little G.E. has said about the breadth of the benefits.

"I don't think the amount of disclosure really explained to the investment community the magnitude of what was being given to the retired C.E.O.," said Jay W. Lorsch, a professor at the Harvard Business School and an expert in corporate governance.

"The other question here is how many of these retirement expenses, such as the apartment in New York, are legitimate expenses that G.E. should even be willing to pay," Professor Lorsch said. "Jack Welch got paid for doing a great job. Why should he get paid twice?"

Nell Minow, editor of The Corporate Library, a corporate watchdog group, believes investors might have been more alert to how indulgent the corporate culture was at G.E. if they had looked more carefully at the company's compensation committee, which, she feels, did not have the independence it needed to say no to Mr. Welch.

Public filings state that two members of the committee, Sam Nunn and Roger Penske, "had business dealings with G.E.," Ms. Minow noted. "And another member, Andrew Sigler, when he was chief executive of Champion International, was widely criticized by shareholders for not relating his pay to the company's performance."

In a statement on Friday, the compensation committee said that a publicly filed 1996 employment agreement to keep Mr. Welch until 2000 agreed to give him lifetime access to "planes, cars, offices, apartments and financial planning services." And the committee said that G.E. had received great value from the arrangement.

In a statement also on Friday, Mr. Welch said the plan had "worked to the benefit of all constituencies."

But Graef Crystal, a compensation expert, asked whether the committee should be revisiting existing arrangements from time to time to see if they make sense in light of the current business environment. "Even if they made sense in 1996, the question is whether they do now."

According to G.E.'s 2001 proxy statement, Mr. Welch put few benefits to personal use. He had only $171,772 in compensation beyond his salary and bonus. The single item that is detailed is $143,479 for financial counseling. That leaves only $28,293 to cover all other spending for personal reasons.

Securities and Exchange Commission rulings require that companies report any personal benefits if they are over $50,000 in total or over 10 percent of any top executive's salary and bonus, whichever figure is lower. In Mr. Welch's case, his 2001 salary and bonus were $16.2 million, so he had to declare any benefits over $50,000.

Thus General Electric is taking the position that any use of the corporate apartment and other perks beyond the $171,772 he spent during the eight months before he retired from General Electric in September 2001, was for corporate purposes. While Mr. Welch must pay taxes on that amount, General Electric can write off that money, if it can show that they are ordinary and necessary expenses of doing business.

Mr. Crystal, the compensation expert, said he found it hard to believe that all those benefits were purely for corporate use. Mr. Welch has four homes — in Connecticut, Massachusetts, New York and Florida. "How did he get to those far-flung places?" Mr. Crystal wondered. "By Amtrak?"

Mr. Sheffer said that people do not understand how G.E. operated. "Mr. Welch, for example, was required to use G.E. transportation at all times for security reasons," he said.

Mr. Crystal said there was no reason for that protection. "If he needs it, why not take a prop plane?" he said. "And now that he is retired, who is going to go after him anyway?"

The planes are also financially advantageous to Mr. Welch.

Mr. Sheffer said that under federal tax rules, personal trips by Mr. Welch using corporate transportation are not required to be disclosed to shareholders. For income tax purposes, when he uses the corporate jet for personal reasons he must pay income taxes not on the cost of the flight, but on the rough equivalent of coach fare, Mr. Sheffer said.

He said that the rules for proxy disclosure and the rules for what Mr. Welch must report as income were not identical, so all of the income Mr. Welch received in the form of personal services might not be reported in the proxy but would be on his W-2 wage statement.

Tax lawyers interviewed yesterday said that many of the items that Mrs. Welch says the company paid for are clearly personal in nature and are compensation to Mr. Welch on which he should pay taxes.

When Mr. Welch files his divorce papers, they are likely to show his income last year. And they will likely include documentation on how much of the benefits he received from G.E. were for his personal use, and therefore how much he must be taxed.

Even if he takes the position that his personal use of those benefits was minimal, some experts yesterday wondered just whether such a rich deal would stand up in court.

Nevertheless, tax defense lawyers yesterday said there was almost no prospect of a criminal tax charge against G.E. or Mr. Welch unless evidence appeared that there had been a deliberate attempt to conceal the spending from I.R.S. auditors.

However, these same tax lawyers said that an audit would likely result in the company or the Welches owing taxes and interest, and that if the couple were held to be responsible, they could owe substantial penalties for under-reporting their income and filing inaccurate tax returns.

Kathryn Keneally, a tax defense lawyer in New York, said that even if G.E. improperly reported the payments to Mr. Welch, "there are a thousand ways they can handle this" that would allow G.E. to escape penalties, but not taxes and interest.

G.E. Expenses for Ex-Chief Cited in Divorce Papers

GERALDINE FABRIKANT / NY Times 6sep02

Papers filed yesterday in the divorce of John F. Welch Jr., the former chief executive of General Electric, by his wife contend that G.E. covered enormous living costs for them while he led the company and will continue to do so for him for the rest of his life. The extent of these benefits has never been disclosed by the company.

General Electric has reported that Mr. Welch's total compensation, including bonus and salary, was $16.7 million in 2000, his last full year at the company before his retirement last September. It has also said that he will remain a consultant to the company on a retainer of $86,000 a year and will continue to have access to G.E. services and facilities.

But it did not disclose the value and the details of his perquisites as chief executive that will apparently continue through retirement. Along with access to corporate aircraft, mentioned previously in company footnotes, the documents filed by his wife, Jane, describe his use of a Manhattan apartment owned by G.E., floor-level seats to the New York Knicks, courtside seats at the U.S. Open, satellite TV at his four homes and all the costs associated with the New York apartment, from wine and food to laundry, toiletries and newspapers. The privileges, down to certain dining bills at the restaurant Jean Georges in the Manhattan apartment building where he lives, have continued even in retirement, the court papers indicate, without placing a value on them.

Acclaimed for his ability to deliver higher profits year after year at G.E., Mr. Welch was one of the nation's most admired chief executives, and his employment contract struck in 1996 reflected his company's impressive performance.

But people who specialize in corporate governance and compensation said yesterday that they were taken aback by the long list of benefits, though they had known about the corporate aircraft, for example.

Nell Minow, a governance expert and the editor of The Corporate Library, once described Mr. Welch's employment contract as a model because it did not appear to include a huge number of benefits. After being told about the filing, she said yesterday: "I would have thought that perks like this had to be disclosed, and they were not. There is really no justification to pay for any living or traveling expenses at that level, particularly now that he is in retirement."

Jonathan Macey, professor of law at Cornell University, said, "General Electric was probably not legally obligated to disclose the details" of his package.

Should the company have awarded him such benefits? "If you think he was leaving and they induced him to stay with these perks," then perhaps it was justified, Professor Macey said. "If it is handed to him by board cronies, then it is not justified. But it is harder to make the argument that this is illegal."

The G.E. proxy statement for 2001 states that the company will provide Mr. Welch, who remains a consultant to the company, with "continued lifetime access to company facilities and services comparable to those which are currently made available to him by the company."

The company provides few details about what those services are. The document did not list any personal use by Mr. Welch of corporate aircraft last year, though it did quantify aircraft use by other executives. There is no mention of sports tickets or restaurant meals or the G.E.-owned apartment on Central Park West, which the court documents value at about $80,000 a month.

According to the court papers, the subsidized benefits include a car and driver for the Welches, and the communications and computer equipment at the Manhattan apartment and at their homes in Connecticut, Massachusetts and Florida. G.E. pays for security personnel when the Welches travel abroad.

Mrs. Welch states that G.E. was paying for V.I.P seating at Wimbledon, a box at the Metropolitan Opera, a box at Red Sox games, a box at Yankee games, four country club fees, security services in all four homes and limousine services while traveling. Because of his relationship with G.E., Mr. Welch and his wife also got discounts on diamonds and jewelry settings.

Gary Sheffer, a General Electric spokesman, pointed last night to Mr. Welch's consulting agreement with G.E., which pays him at least $86,535 annually for his first 30 days of work, with a payment of $17,307 for every additional day.

The agreement, which has been widely disseminated, states that he gets lifetime access to G.E. services and facilities. "The technical stuff is basic business material that he needs as a consultant," Mr. Sheffer said.

Through an assistant, Mr. Welch declined to comment last night.

Mr. Sheffer said he could not confirm all the other expenses but that "a lot of it goes back to Jack's consulting agreement, which was signed in 1996, when the board asked him to stay on until he was 65 years old," he said.

"As part of that agreement, he got promised access to everything he had had as chief executive after he left," Mr. Sheffer said.

As to tickets to Wimbledon, he said, "we broadcast them," referring to television coverage by NBC, a unit of G.E. When his meals at Jean Georges are for personal reasons, he pays, Mr. Sheffer said, quoting Mr. Welch's assistant.

The general reference to G.E. services is misleading, Ms. Minow said. "It is appalling that one of the wealthiest men in America cannot write a check for his own Knicks tickets," she said. "It is appalling to me that Jack Welch's flowers are being paid for by retired firemen and teachers who are the G.E. shareholders and don't know this is going on.

"The reason that executive compensation and employment contracts are disclosed is so that investors know whether the interests of the executives are aligned with those of shareholders and whether the board is doing its job," she continued. "In this case, based on what was publicly available, it was impossible to tell that."

High living by chief executives on the company's payroll has become a sore point for shareholders as the stock market has plunged. One prominent example was the $17 million New York apartment that Vivendi Universal bought and made available to Jean Marie Messier, who was recently ousted as chief executive. Tyco shareholders recently learned that the company forgave a $19 million loan to its former chief executive, , L. Dennis Kozlowski, that was used to purchase a home in Florida.

General Electric's stock has been depressed amid concerns about the economy and about its financial transparency. Last month, its new chief executive, Jeffrey R. Immelt, said he would sell the apartment for his use that is in the same building as Mr. Welch's and valued it at $15.2 million.

Jane Beasley Welch filed the papers about the Welches living arrangements in Superior Court in Bridgeport, Conn., after the two failed to reach an amicable divorce settlement. William Zabel, the partner at the law firm of Shulte Roth & Zabel who is representing her, said that Mrs. Welch was seeking additional support because her husband had canceled their joint credit cards and had provided her with support of $35,000 a month, which she accepted under protest and said was far below their previous standard of living.

Mrs. Welch, who has been married to Mr. Welch for 13 years, oversaw their various properties and was involved in the living and financial arrangements, her lawyer said.

Suzy Wetlaufer left her job as editor of the Harvard Business Review in April after it was reported that she had begun a relationship with Mr. Welch. The Welches then separated, two years after the expiration of their prenuptial agreement, which provided some protection for his $900 million fortune.

Though Mrs. Welch describes $126,820 a month in costs incurred by the couple to maintain their lifestyle, the filing states that she is unable to quantify the value of most items covered by General Electric or how much Mr. Welch may contribute to those costs.

She provides an expert's assessment showing that the use of General Electric's Boeing 737 aircraft is valued at $291,869 a month, or about $3.5 million a year.

The other significant figure is the $7.5 million that she says General Electric paid in capital expenditures and furnishings for the couple's homes over the course of their marriage. (The Welches personally spent $32.5 million on those properties, the documents show.) At the time of the separation, the couple were building a home in Connecticut, and the filing states that several G.E. employees were on hand to assist in the design and installation of the security, telephone and other systems.

Mr. Welch's employment contract, as filed with the Securities and Exchange Commission, is a bit more expansive than the company's annual report or proxy statement. In retirement, Mr. Welch gets access to company "aircraft, cars, office, apartments and financial planning services" and he is to be reimbursed for "travel and living expenses incurred in providing services to the chief executive officer," it states. The benefits are "unconditional and irrevocable" even if Mr. Welch is incapacitated, the contract said.

Graef Crystal, who specializes in corporate pay, said he was shocked that the benefits were irrevocable.

"This is an indictment of G.E.'s board of directors," Mr. Crystal said. "This is the most appalling use of corporate assets. No one had any idea of the magnitude of what the company had been giving him." He said that either the board did not know about it or was not paying adequate attention.

Mr. Crystal said that Mr. Welch was paid exceedingly well and that he is a wealthy man whose stock alone is worth about $900 million. Mr. Crystal also said that Mr. Welch has a life insurance policy paid by the company and a pension plan that pays more than $9 million a year.

Mr. Zabel said it is unclear who paid the taxes on the benefits described in the court documents.

Mr. Crystal said he believed that the dollar value of the benefits should not be tax deductible to General Electric because there is no business purpose to those expenditures.

"If Mr. Welch bears the taxes, they should be deductible unless there is a direct business value to a particular event," Mr. Crystal said. "But if you look at his New York apartment, why would that cost be a business expense to either party?"

Mr. Crystal said that he would like to see greater disclosure of executives' perquisites. What passes for business spending is often a lifestyle enhancement, he said.