WSJ Reports: Pension Funding and Executive Compensation

Today’s edition of the Wall Street Journal has this important article (subscription required) by Jesse Drucker and Theo Francis: “Pensions Fall–Not CEO’s Bonus.” The article discusses how in good times, pension surpluses helped to boost corporate earnings which in turn increased executive compensation under executive bonus plans which were tied to net income. However, now that pension plans are underfunded, with many companies having to pump money into their pension plans, companies have been inserting special language into their bonus plans so that bonuses can continue to be paid, despite earnings, according to the article. The article quotes Carol Bowie, director of governance research at the Investor Responsibility Research Center, a Washington research and advisory firm for institutional investors as saying, “This pattern where pension surpluses are included for bonuses but pension expenses are excluded just underscores how these incentive programs can be manipulated in order to maximize payouts.” The article quotes a Verizon spokesman as saying that their executives have always been compensated “based on operational performance and strategic factors” and not based on “losses or gains in the pension fund.”