VideoAccording to published reports, the Securities and Exchange Commission has launched an informal probe into the retirement perks doled out to former General Electric Co. chief executive Jack Welch.
Last week, the New York Times reported that Welch received a host of retirement benefits that were never disclosed, including use of a Manhattan apartment owned by GE, floor-level seats to the New York Knicks, courtside seats at the U.S. Open tennis tournament, and satellite television at his four homes.
Reportedly, Welch last week asked GE to take back many of the perks. On Thursday, GE's board of directors agreed to let Welch keep the benefits—as long as he paid for them, according to reports.
Yesterday, however, GE management announced it had decided to cancel many of Welch's perks. GE spokesman Gary Sheffer also acknowledged that the conglomerate had received notice of the SEC inquiry and said the company is cooperating with the commission.
Welch said that he will pay for many of the perks and services, which he valued at as much as $2.5 million a year, according to published reports.
That sum could be low, however—if you go by the math in an article in today's edition of the Times. In it, the paper notes that the government tends to assess perks by the cost to shareholders—not necessarily the cost to the perk-receiver. For example, it might cost an executive less than $500 to take a corporate jet from New York to Paris on vacation. But the flight would actually cost shareholders at least $15,000.
Of course, SEC disclosure rules do not apply to retired chief executives like Welch.
For his part, Welch went on the offensive yesterday. Writing in the Wall Street Journal, the former GE CEO said the perks had been "grossly misrepresented" in the divorce case with his ex-wife, who brought these benefits to light in her legal filings.
"For the record, I've always paid for my personal meals, don't have a cook, have no personal tickets to cultural and sporting events and rarely use GE or NBC seats for such events," wrote Welch. "In fact, my favorite team, the Red Sox, has played 162 home games over the past two years, and I've attended just one."
Welch also wrote: "In today's reality, my 1996 employment contract could be mis-portrayed as an excessive retirement package, rather than what it is—part of a fair employment and post-employment contract made six years ago. For GE and its board to be dragged into these stories because of a divorce dispute is just plain wrong."
But, acknowledging the recent rash of corporate executive abuses, Welch said he grudgingly agreed to relinquish the perks because "perception matters."
"In this environment, I don't want a great company with the highest integrity dragged into a public fight because of my divorce proceedings," he wrote. "I care too much for GE and its people."
Appearing on CNN's "Moneyline" late last night, Welch noted that executive compensation is a complicated topic—and that limiting what companies pay top managers could have unintended consequences. He also seemed to indicate that a generous retirement package can help a company hold on to a prized senior executive, particularly if that top executive is being courted by rival corporations.
Manic Monday, Tyco Tuesday
Management at Tyco International Ltd. said it plans to file an 8-K report with the SEC that will include new details about previously undisclosed loans made to dozens of employees. Reportedly, those loans were later forgiven—apparently on the instructions of former chief executive L. Dennis Kozlowski.
The loans, worth millions of dollars, were supposed to be revealed in a filing as early as Monday, the New York Times had reported. But the company indicated it delayed the filing due to the Yom Kippur holiday.
The filing is also expected to describe details of many of Kozlowski's activities that led to his indictment last week on charges of fraud, larceny, and corruption, as well as of the company's own lawsuit against him and two other senior executives.
Conference Board to Endorse Expensing Options
A special task force of The Conference Board is expected to come out today in favor of expensing executive stock options. This, according to a story on the Washington Post's Web site.
The article states that 2 high-profile members of the 12-person task force plan to officially disagree with the group's recommendation, however.
Apparently Intel Corp. chairman Andrew S. Grove thinks stock options are too hard to value and shouldn't be added to expenses. And former Federal Reserve Board chairman Paul Volcker believes that treating options as an expense doesn't go far enough. The former Fed chairman would like to see options phased out as a key component of executive pay altogether, according to the paper.
The options-related recommendation—and dissenting opinions—will actually be part of a larger report that will offer 20 recommendations for bringing executive pay in line with shareholder interests, said the Post's report.
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