A recent study of the S&P 500 shows that companies with employee pension plans put less into funding those promises than they did into management’s stock grants and options. That’s despite an aggregate $283.6 billion shortfall in the 500’s pension plans.
The report’s author, Jack T. Ciesielski, well known for digging into companies’ financial figures in his research publication, the Analyst’s Accounting Observer, found that the combined fair value of restricted stock and options issued as executive compensation during 2008 was $44.5 billion. Those same companies put $39.5 billion toward employee pensions. (Only 358 companies still have pension plans and that’s the universe he looked at).
Questions of equity aside, Ciesielski questions the business sense of such a move. “From the shareholders’ point of view, one has to question why so many dollars with uncertain returns are thrown at management compensation, when shareholders could be insulated from pension claims with some of those same dollars,” Ciesielski said in the report, according to a write up of the study by the Council for Institutional Investors.
The biggest difference came from financial companies. In 2008, for every $1 contributed to their employee pension plans companies in the financial services sector granted approximately $2 of restricted stock and $0.30 of stock options to their brass.
The full report is only available to paying customers, but in Ciesielski’s own summary he argues it’s important not to focus on executive compensation in a vacuum but to compare it to other corporate obligations — like pensions — and to factors affecting corporate returns like research and development or capital expenditures. As well as how the option dilution affects their own ownership.
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