So I’m reading company proxy statements every day, analyzing the more arcane details of compensation for a blog I’m doing for work (http://ceopay.asyousow.org). I’m getting numbed to high CEO pay figures (at least a bit), but every now and then there’s something that stands out, because it is not only representative of excesses but of the way the system is rigged. At Comcast, as it turns out, this is in the “retirement” category. Though of course the figures go well beyond retirement, what it really is is tax favored wealth accumulation. At Comcast company sets aside several millions of dollars a year for the CEO’s “deferred compensation account” and they guarantee a rate of return. Keep reading for the dirty details.
What I look at a CEO’s pay package the first thing I do is go to the summary compensation table in the proxy statement. It is mandated by the SEC and breaks down all the many kinds of compensation: salary, bonus, stock options, stock awards, short terms incentives and two other categories, increase in pension value and “all other compensation.” When I was looking at the total packages for Comcast CEO Brian Roberts (whose total was $32.9 million) that was the piece that stood out to me.
The number in that catch all, miscellaneous category was over $4 million. Most figures reported here are for perks (you know, the kinds of things we all enjoy, family time on corporate jets, etc.). Shareholder pressure has made inroads, and the number in this column seems to be going down. The optics of excessive perquisites is embarrassing and the logic that someone being paid millions of dollars can pay for their financial planning is pretty sound. So these days the figure in that column is typically 5 or maybe 6 figures. A number in the millions is extraordinary. I did some research and found out that the $4 million figure was 2nd highest of all other S&P 500 companies this year. Did a little more digging and found out that for as long as I have access to the record they’ve always been near the top, never lower than 7.
Why? In the case of Comcast the amount is due to unusually generous contributions the company makes executive deferred compensation plans.
Stepping back a minute: deferred compensation plans are a tax-advantaged savings mechanism, allowing executives to avoid caps on 401k contributions. They are designed to allow executives to put some compensation aside to receive after retirement when they presumably will be in a lower tax bracket. Comcast describes its deferred compensation plan as “our primary retirement vehicle generally to all employees with base salaries of at least $250,000,” and is proud of the fact that it doesn’t have pensions. It is not that unusual to see company’s create a mechanism for executives do this.
However, it is unusual to see the company contribute, particularly in the extravagant contributions made by Comcast. These contributions appear to be guaranteed under employment agreements. In 2014, the company made contributions of $3.6 million to Roberts deferred compensation plan. Roberts is guaranteed a contribution of $3.8 million in 2015. Another executive, Stephen Burke, President and CEO of NBCUniversal, whose total compensation this year exceeds $33 million, has an agreement that provides for specifics amounts of deferred compensation each year through 2018, when the amount will also exceed $4 million.
The total amount in Robert’s deferred compensation account at the end of the fiscal year was $96,641,079.
And now we get to the final astonishing fact, the reason the figure grew so high is that executives at Comcast have a guaranteed rate of return. A footnote says under the compensation table says that an additional $6.5 million, reported in the change of pension value column, represents, “the dollar value of interest earned on compensation deferred under our deferred compensation plans in excess of 120% of the long-term applicable federal rate. The interest crediting rates on deferred compensation were 9% or 12%.”
Beginning with compensation earned after January 1, 2014 the interest crediting rate was reduced from 12% to 9%, but it remained at 12% on (i) compensation that was originally earned before January 1, 2014 (including any subsequent redeferrals) and (ii) certain other compensation earned on or after January 1, 2014. In other words, most of the current savings will continue to receive the 12% guaranteed rate.
But even the 9% sounds like a pretty good deal to me. If you could get guaranteed rates of 9% on savings, I bet you’d defer as much compensation as you could as well. As I mentioned above, the fact of the matter is, this isn’t really about retirement anymore. It is about wealth accumulation.
I know this is a lot of detail, understanding how wealth is accumulated is necessary step in figuring out how to address wealth inequality.
I look forward to your comments. Would you like to see more of these diaries?
Thu Apr 16, 2015 at 7:26 AM PT: So glad to see how much attention this diary has received! Reading Exxon proxies now and your comments inspire me.