When does no bonus still mean a bonus? When pension payments compensate for the absence of cash rewards.
A new report from The Corporate Library, an independent corporate governance research firm, found that 17 CEOs of financial services firm who were not paid bonuses in 2008 received substantial increases in their pension or other retirement benefits. In fact, more than one tenth of CEOs of S&P 500 companies found themselves in this situation in 2008, compared with only one company in 2007.
"It's tempting to suspect that, in at least some cases, the non-payment of a bonus was being compensated for by increases in pay elsewhere in the package," said Senior Research Associate Paul Hodgson, author of the report in a prepared statement.
The median increase in retirement benefits for the 52 CEOs included in the study was more than $800,000, while the median cash bonus for the S&P 500 as a whole was $1.8 million.
The trend isn't limited to U.S. companies. Just last week there were reports about London-based HSBC Chairman Stephen Green, who had asked the bank to end his bonus payments in 2008, but who received a 4.9 million-pound ($7.4 million U.S.) rise in his pension for that year and another 1.4 million-pound increase in 2009.
The Corporate Library's primary analysis was drawn from proxies filed within the 12 months prior to February 5, 2010. Of the 52 CEOs who received increases in retirement benefits but no cash bonus, many (17) were CEOs of financial services firms where performance did not seem to merit any kind of incentive payment. These included State Street, PNC Financial Services, Regions Financial, Northern Trust, and KeyCorp, according to The Corporate Library.
Other major corporations with pension increases and no bonuses included Dow Chemical, Eastman Kodak and General Electric. Increases in retirement benefits varied from around $2.9 million to $3.5 million each for the CEOs of these companies.
In the category of things that make you go huh -- you have to wonder if these folks didn't deserve any kind of reward for performance. As The Corporate Library points out, given the performance of the stock market in 2008, "we can be assured that any increase in retirement benefits came from company contributions rather than growth in the value of stockholdings, whether held in company stock or a wider portfolio."
Retirement benefits represented a median and an average of around one fifth of total realized compensation for this group of 52 CEOs, compared to a median of less than two percent and an average of less than 10 percent for the S&P 500 as a whole. In addition, most CEOs in the S&P 500 received bonuses far in excess of retirement benefits. Three hundred and twenty-nine received more compensation in the form of cash bonuses than in pension. Also, 44 CEOs received neither any increase in retirement benefits nor any kind of cash bonus, including the CEOs of Goldman Sachs, Nordstrom, Apple and Starbucks. However, that still leaves 127 CEOs who received more compensation in the form of an increase than as a cash incentive.
With the onset of the proxy season, The Corporate Library is calling on boards not to resort to such back door pay policies and warned shareholders to be on guard for them.
Finance executives who ignore the warnings risk a shareholder backlash.