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|  | SEPTEMBER 24, 2004
By Amy Borrus Exposing Execs' "Stealth" Compensation GE's settlement with the SEC over whether it disclosed its former chief's huge retirement perks point to the need for stricter rules The use of a luxury apartment valued at $11 million and other shockingly lavish perks that former General Electric (GE ) CEO Jack Welch received when he retired three years ago are old news. But investors shouldn't brush off the Security & Exchange Commission's Sept. 23 settlement with GE over its alleged failure to disclose them. The agreement, say critics of runaway CEO pay, is a timely reminder of the need for new rules that give shareholders a clear picture of the full panoply of executive retirement benefits. The SEC punished GE with a cease-and-desist order -- essentially a warning not to violate disclosure laws in the future. The giant Fairfield (Ct.) conglomerate, which neither admitted nor denied the findings, won't pay a fine. It ended most of Welch's perks -- which included unlimited personal use of a company jet and bodyguards for his book tour -- two years ago, after he volunteered to give them up. MESSY DIVORCE. In December, 1996, Welch and GE struck a retirement deal in which he agreed to stay on as CEO and chairman until he was 65 and to consult afterward. The agreement promised Welch lifetime access to the perks and benefits he received as GE's top exec. But the SEC found that GE's proxy statements and annual reports filed in 1997-2002 failed to provide specific information about the retirement benefits Welch was entitled to receive. "Shareholders have a clear interest in knowing how public companies compensate their top executives," said Paul R. Berger, associate director of the SEC's Division of Enforcement, upon the settlement's announcement. But the perks, valued at $2.5 million a year, were a fraction of Welch's total retirement package, which was estimated at $20 million to $50 million. And the generous deal only became public in 2002, when Welch's former wife, Jane, filed for a divorce. That's because SEC disclosure rules for executive retirement benefits are less stringent than those governing compensation of sitting execs. For example, the SEC only requires companies to disclose the dollar amount of above-market interest credited to an executive's deferred-compensation account -- but not the actual interest rate, nor the total amount of deferred compensation. "REAL MONEY." "The lesson of the Jack Welch retirement-benefits scandal is that the SEC needs to improve the disclosure of executive retirement benefits -- not just the perks but the pensions and deferred-compensation arrangements, too," says Brandon Rees, a research analyst in the investment office of the AFL-CIO. "That's where the real money is." In fact, a new study details how corporate boards camouflage generous executive compensation through the use of retirement pay and benefits. The report, Stealth Compensation via Retirement Benefits, was written by Harvard Law School Professor Lucian Bebchuk and Jessie M. Fried, a professor at Boalt Hall School of Law at the University of California at Berkeley. Shareholder resolutions seeking to rein in executive compensation received strong votes this past proxy season. If investors keep up the pressure, companies may eliminate the stealth -- and reduce the wealth -- when bidding farewell to top execs.  Borrus is a correspondent in BusinessWeek's Washington bureau Edited by Patricia O'Connell
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