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|  | NOVEMBER 7, 2003
Pay Questions for TIAA-CREFF's Allison The head of the champion of good corporate governance -- kept on by John Reed as a NYSE board member -- will get $8 million in 2003 When interim Chairman John Reed named eight candidates for a new and improved independent board to oversee the New York Stock Exchange on Nov. 5, he said he "avoided people who had been highly compensated" in making his selections. Reed cited "obvious reasons" for this decision, a reference to the recent flap over former NYSE Chairman Richard Grasso's lavish compensation plan. One highly compensated board member seems to have slipped through, however: TIAA-CREF Chairman and CEO Herbert Allison Jr., one of two nominees from the NYSE's previous board, will earn $8 million in total compensation in 2003, according to a breakdown of his pay released by the company on Nov. 7. That's not much in comparison with Grasso's $187.5 million package. But Allison will earn more than his predecessor at TIAA-CREF, John Biggs, who retired in 2002. Biggs earned $5.8 million his last full year as CEO, including his salary, performance bonuses, and lifetime annuity. Allison's five-year contract awards him $1 million in salary, a minimum $3 million performance bonus, and a long-term compensation award of $4 million, payable in 2005. He'll also receive $500,000 for his work in 2002 and will be entitled to a $1 million retirement annuity if he stays until 2008. EYEBROWS RAISED. Allison's pay is in the middle range for companies of TIAA-CREF's size, according to compensation consultants. Indeed, the provider of pension plans for colleges and other nonprofits explained in its release that it wanted to bring its executives' compensation more in line with top execs at major life insurers like AIG and CIGNA to retain top talent. TIAA-CREF has $290 billion in assets under management. Asked to comment on Allison's compensation, TIAA-CREF referred questions to board member Ronald Thompson. "We believe it's necessary to offer a reasonable compensation to attract and retrain the type of talented executives we need to ensure the company offers the best products and services to the people who invest with us," Thompson says. TIAA-CREF has been much more than a pension-plan manager for teachers, however. It's a renowned champion of good corporate governance. And his short-term performance bonus as well as his severance pay if he's terminated without cause are raising eyebrows among some corporate-governance experts. A FINE LINE. Thompson counters that it's not uncommon to agree to a first-year bonus when a CEO is brought in from outside. On top of his salary and bonuses, Allison, 60, will also receive $24 million in severance pay if he's terminated without cause by November 1, 2004, along with $1 million in retirement annuities annually as part of his retirement benefits. "The pay is good, and the severance is even better," says Wall Street compensation consultant Alan Johnson of Johnson Associates. Indeed, the $24 million severance package is barely within the limits of TIAA-CREF's own investing policies, which permit it to invest only in companies in which execs' golden parachutes don't exceed 2.99 years' pay. Thompson says the definition of cause was broadened in Allison's package so that it would be "inconceivable" for him to be terminated without cause. "But it's an issue that's increasingly being questioned by investors," points out Patrick McGurn, special counsel for Institutional Shareholder Services. All eyes are on Allison, a former president of Merrill Lynch (MER ) who's now putting TIAA-CREF through a wrenching makeover, laying off hundreds of employees. He's walking a fine line between expanding the firm's business while maintaining its above-the-fray practices (see BW, 10/13/03, "Moving out of the Ivory Tower"). PERCEPTION PROBLEMS. "If TIAA-CREF saw this contract at another company, in view of the guaranteed bonuses and the apparent overreliance on salary surveys and the broad definition of compensation for severance purposes, I think they would frankly have a problem with it," says McGurn. "It's not not practicing what they preach, but it's not best practices either." The NYSE declined to comment on Allison's compensation package. But he can hardly afford to be perceived as barely meeting good corporate-governance requirements. And neither can Reed.  By Emily Thornton in New York Edited by Douglas Harbrecht
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