News that the CEO and chairman of the drug distribution corporation McKesson Corporation has received the largest pension in U.S. history highlights the gap between corporate executives and their employees.
As more corporations discontinue their pensions ans convert to 401(k)s, where employees assume all the risk for navigating their financial futures over four or five turbulent decades, more CEOs are choosing the more generous and safer route: pensions.
The latest news from the San Francisco Chronicle is that McKesson CEO John Hammergren has set a new record in corporate America for receiving the largest pension ever: a $159 million lump sum payment.
A company that tracks executive pay,GMI Ratings said Hammergren’s pension is over twice as large as the next largest, $74 million for Rupert Murdoch, chairman and CEO of News Corp. Murdoch, whose media empire includes FOX News, was involved involved in a scandal involving his flagship newspaper, the News of the World, which used wiretaps on celebrities and royalty to gain private information.
More CEOs Getting Pensions
According to GMI, 54% of CEOs of companies in the Standard & Poor’s 500 index have accumulated pension benefits with an average value of over $7 million, down from $11.5 million a year ago.
CEOs are getting their guaranteed pensions while the majority of U.S. workers are now relying on 401(k)s. In 2012, for the first time in history, more people were relying on 401(k)s than pensions to fund their retirements. This trend has been building since the 1970s when pensions reached their peak.
In 2010, 19% of family heads who participated in an employer-based retirement plan had a pension plan, while 65% had a 401(k) plan. In 20120, 16% had both a 401(k) and a pension plan.This was a significant change from 1992 when 42% of workers had a pension plan, and 41% had a 401(k).
The New American Workplace
This shift is much more than one restricted to benefits. By moving employees into 401(k)s, employers have also shifted all the risk for managing these plans to many people who are not qualified or educated to manage t the financial risk over decades.
In addition, the employers, also known as plan sponsors, still maintain control over what is allowed into the 401(k) plan, including the plan providers, investment funds and importantly the costs being charged to employees. The problem is that employees do not have any input into their own fund selection process, so they often can be pushed into higher-cost funds which only erode their net investment returns.
The benefit of awarding huge pensions to CEO at the expense of workers also highlight the gap in the American workplace. Employees have not received wage increase despite large increases in productivity. At the same time management salaries have increased. This is one problem in the new American workplace and it helps explain the recent Gallup poll which showed that most American workers do not like their jobs.
In short, the employees take all the risk and do not get any input into what could easily determine the quality of their financial futures and retirements. But the CEOs know better. They have the choice to get a pension or a 401(k), so they take the cream and cash out with their pensions years before their own retirements. This is the new CEO version of risk management.