(Bloomberg) – Pensions are helping to fuel a jump in average chief executive officer pay — and the reason is largely out of companies’ control.
Standard & Poor’s 500 Index companies that have filed proxy statements for fiscal 2014 contributed an average $1.5 million to their CEOs’ pensions, compared to an average of about $550,000 in 2013, according to summary compensation table data compiled by Bloomberg. Pensions comprised about 11 percent of total CEO pay at those companies, compared to 4 percent in 2013.
The ballooning pensions were often triggered by preset agreements on CEO retirement pay, rather than new decisions by boards to give their executives more. Longer lifespans and lower discount rates are forcing companies to add more to their CEOs’ pensions to meet return expectations and support future payouts, said Steve Seelig, an executive compensation consultant at Towers Watson & Co.
“This whole question about pension values is coming up simply because it’s rising so much due to things that aren’t really design related,” Seelig said.
Corporate pensions provide retirement benefits that are derived from an employee’s compensation and years at the company. The board of directors agrees to grant a set plan to an executive that often pays out in installments upon retirement. Contribution calculations take into account how long a CEO may live and a discount rate set by accountants and the companies.
The pension data comes from about 260 S&P 500 companies, at which average CEO pay was $13.6 million in 2014, compared to $12.5 million in the year earlier, the data show.
At least 60 companies have more than doubled the amount of money added to their CEOs’ pensionssince 2013. U.S. Bancorp, PNC Financial Services Group Inc. and Honeywell International Inc. have all increased their contributions to CEO pensions this year more than 11-fold. Prudential Financial Inc.’s John Strangfeld saw the change in his pension value climb to $20.2 million in 2014, compared to about $2,500 in 2013, according to a filing yesterday. The change was $15.6 million in 2012.
The Society of Actuaries, which last updated its mortality tables in 2000, said in October that women and men are expected to live about two years longer than previously estimated, which would require companies to make pension payouts for longer.
That led Aflac Inc. to boost CEO Dan Amos’s pension contribution by more than fivefold to $6.8 million in 2014, according to its March 19 proxy filing. The jump accounted for more than one-third of his $15.5 million total pay, according to the Columbus, Georgia-based company’s summary compensation table.
“The change in pension value was driven largely by the adoption of the updated mortality tables,” Aflac said in the filing. “The tables increased life expectancy for both males and females.”