A new report from As You Sow:
The most astounding component of McNerney’s package however, is his retirement payments. Under his employment agreement, he has a “target benefit” that the company describes as “calculated as a straight-life annuity commencing at age 62 payable from Boeing (including qualified pension benefits, nonqualified pension benefits and the employment agreement) that is offset by pension benefits payable by his previous employers, 3M and General Electric. This target benefit is 50% of Mr. McNerney’s highest average annual compensation (annual base salary plus annual incentive compensation).”
In the agreement average annual compensation is defined as “the highest three years out of ten.” Interestingly, his for 2014 under this definition was 11% higher than the previous year. The company notes that, “For service accrued through December 31, 2014, the target benefit (before reduction for other provided pension benefits) was $3,184,500 per year.”
This is only one component of his agreement. According to the most recent proxy that 12/31/2014 value was $34.3 million, but he has two other plans. His SERP (Supplemental Executive Retirement Plan) that was worth $11.8 million in that disclosure, and the standard pension plan, worth less than half a million dollars. He also has a deferred compensation plan, in which the company matches part of his contributions. The value of that one at the end of the last fiscal year was over $2.5 million.
This case highlights one problem with auto-renewing agreements and employment agreements in general. They are notoriously hard to alter even as best practices evolve. The company’s “Pension Value Plan (“PVP”) and Supplemental Executive Retirement Plan (“SERP”), two defined-benefit retirement plans that do not require employee contributions” are only available to executives hired before January 1, 2009.” Effective December 31, 2015 no further pension benefits will accrue under these plans, even for eligible executives such as Muilenburg. Instead, the executives will transition to defined contribution plans.
We would add: they are difficult to revise in part because there is no indication that anyone on the board ever tries.