When Vance D. Coffman retired as chief executive officer of Lockheed Martin Corp. last year, he got two pensions for his 37 years with the company.
The first, of the type available to thousands of other employees of the Bethesda-based defense contractor and based on his salary and years of service, entitled Coffman to $110,940 a year for the rest of his life. Coffman accepted a smaller amount -- $87,187 a year -- so the payments would continue until both he and his wife die, according to the company's filings with the Securities and Exchange Commission.
The second plan was a bit more generous. Like most executives when they reach the corporate suite, Coffman negotiated a separate set of retirement benefits that paid off handsomely when he left: $2.5 million a year for life. Coffman also had the option of taking a lump-sum payment instead, which the company computed at $31.5 million based on factors such as his life expectancy, the filings show.
Just as top corporate executives are in a different league than other employees when it comes to pay, so they are with retirement benefits. Negotiated individually, retirement packages in the tens of millions of dollars are common, as are many other retirement benefits such as consulting contracts and the use of offices and automobiles.
For example, Clay W. Hamlin III, who retired April 1 as chief executive of Columbia-based Corporate Office Properties Trust Inc., was given a one-time $250,000 retirement bonus, a three-year consulting agreement at $250,000 a year, an auto allowance of $12,000 a year and $8,500 annually for financial planning and income-tax preparation, according to company reports.
Traditional pensions for rank-and-file employees are becoming more scarce, and more workers are being asked to save for their retirements with only tax deferral and usually, but not always, contributions from employers.
Also, a growing number of workers and retirees, especially airline pilots, are losing much of the pensions they were promised as companies go into bankruptcy. Traditional pensions are guaranteed by a government agency, but that guarantee is limited to about $45,000 a year, less for workers who retire before they turn 65.
Many people are mystified at the pensions and benefits that executives receive, and many wonder why a senior executive earning millions of dollars a year in salary and bonuses needs a pension at all.
Most of the theory behind executive pensions comes from studies in the 1960s, based on middle-class workers who were deemed to need 70 to 80 percent of their pre-retirement income to live on, said Alan M. Johnson of Johnson Associates, an executive-compensation consulting firm in New York.
"They never changed," Johnson said. If an executive becomes chief executive and earns a million dollars a year, "they still throw around rules based on somebody making $14,000 in 1968," he said. "The whole structure of this is amazingly flimsy. It's really not based on any thoughtful analysis."
But if that's the case, why don't boards of directors rein in retirement benefits?
According to compensation experts, chief-executive pay is a tiny fraction of the cost of running a huge corporation; proven executives are hard to recruit; and those who can be recruited want their pay allocated between salary and pensions, which are relatively risk-free, and incentive pay, which they might not get if the company performs poorly. If they didn't get pensions, analysts say, they would probably demand more in other forms of compensation.
The public "will think all of these guys are grossly overpaid," said Ira T. Kay, an executive-compensation expert at Watson Wyatt Worldwide, a big benefits consulting firm. But "it's a sellers' market" for executives, and they can drive a hard bargain, he said. If company compensation committees "thought they could pay less, they would."
Executives "do want it all," Kay said. "They do want aggressive stock incentives, and they do want a pension. It is true that if they fail and [are] fired, they still end up with very good pensions, but nothing like as much as if the company is successful."
Some executives who get into trouble do well. At Freddie Mac, ousted chief executive Leland C. Brendsel successfully sued last year to force the release to him of $50 million in severance benefits that the company's regulator had frozen. Former Fannie Mae chairman and chief executive Franklin D. Raines, forced into retirement after an accounting scandal, last year left with a pension that will pay him $1.4 million a year for life.