July 21, 2005

US Senate to Consider Confirmation of Cox and Others

According to this Washington Post article, the Senate will hold confirmation hearings next Tuesday for Chris Cox as SEC Chair and Roel Campos and Annette Nazareth as SEC Commissioners.

I blogged last week about how some Democratic Senators had urged that all three be confirmed together to maintain a full complement of SEC Commissioners. However, as far as I know, the White House has not yet formally submitted the names of the two Democrats. I guess we will know soon enough whether this article’s prediction is accurate.

Think SERPs Make Sense? Look at Sandy Weill’s Excessive SERP

Citgroup’s Sandy Weill is in the news about how the Citigroup board is negotiating hard to try to recoup some of the lucrative perks that would be given to Mr. Weill post-retirement in exchange for him being allowed to run a private equity fund and leave as Chair earlier than contracted (if you can believe it, one sticking point is that Weill would have unlimited private plane use on Citigroup’s dime while he works for the fund – does the guy not have enough money already? Or why can’t the fund pay for the travel of its employees? Is using a plane for another business considered “personal use”? Are these stupid questions?).

Anyways, a reporter from the major media called me yesterday to learn more about one of our practice pointers posted on I repeat this pointer below; it was posted a year ago by an anonymous Task Force member (don’t forget, there are plenty of other pointers in our “SERPs and Other Retirement Benefits” Practice Area) and it analyzes the consulting agreement that was then entered – and for which the Citigroup board now appears to have “buyer’s remorse”:

“You could add much about Sandy Weill’s most recent redo of his employment agreement which will continue until his contemplated retirement in the year 2006. How mightily Weill has prospered during his reign at Citigroup and its corporate predecessors is well known. On the 2003 Forbes “500” list of most highly compensated executives, Weill ranked No. 27, and on its “400” lists of richest people, he cracked the world list at No. 377 and made No. 162 in the U.S., with an estimated net worth of more than $1.5 billion.

Does it really serve any valid corporate purpose, after extending his employment contract, to enhance his already earned retirement benefits with a rich consulting agreement – and more? Okay, the consulting agreement is probably worth it to Citigroup because of agreement provisions in the nature of non-compete, anti-piracy, confidentiality protections, etc.

But so long as Weill does not “opt out” of those provisions, then after his retirement he will be entitled to a supplemental pension benefit equal to a $711,000 lifetime annuity, plus certain other benefits and perquisites which, to sum them up, would remain on a par with those still commonly awarded to imperial CEOs. This will be all on top of other hitherto fully earned pension benefits under other Citigroup programs under which Weill’s estimated annual benefit, expressed in the form of a single life annuity, is $350,000.

The “old” plus the “new” annuities look as though designed to keep Sandy on at roughly equivalent of a $1-million-a-year income, notwithstanding all his accumulated non-pension wealth guaranteed to keep him off the public dole during retirement. Another aspect to this is that those pension numbers are expressed in terms of periodic benefits which, when disclosed in the 2004 Proxy Statement, have -or had – a single-sum present-value, which was not disclosed.

As I look at the deal as a whole, if before 2006, Weill sees something worth his while (which will likely give him more than $700,000 a year in a combination of earned income, entrepreneurial wages and post-reemployment benefits), he could bow out of the all the constraints on him that Citigroup supposedly put a value on and leave the extra pension deal on the table. That would not really serve Citigroup’s interests.”

To drive this point home, did you read yesterday’s WSJ article describing notes taken from interviews with nine of the former NYSE comp committee members who confessed they had no idea how large the Grasso SERP would be under the amounts they blessed…

Analysis of Citigroup’s Retirement Disclosure

So how does Citigroup’s disclosure regarding Sandy Weill’s retirement package stack up? Our comp disclosure guru, Ron Mueller of Gibson Dunn, states:

“Reading the Wall Street Journal article, my first thought of course was to see whether Citigroup had described in its proxy the perks that Mr. Weill is entitled to for life.

I’ve copied their proxy disclosure below, but bottom line is that they did do that, specifically calling out his lifetime entitlement to aircraft use, car and driver and security, among others. This shows to me the value of good comprehensive disclosure. Companies are often concerned about “causing a commotion” with a detailed description of an agreement, even when that agreement is on file. But you never know when other factors will “cause a commotion” to arise, and when that happens, it’s certainly better to have had good disclosure in the first place, instead of regretting in hindsight an earlier effort at short-hand disclosure.”

Here is the Citigroup proxy disclosure excerpt noted above:

“Mr. Weill and Mr. Rubin have entered into employment agreements with Citigroup, which are described in detail below. Messrs. Prince, Druskin, and Willumstad do not have any individual employment or severance agreements. Covered executives do not receive any perquisites following retirement other than those to be provided to Sanford Weill under his employment agreement, which is described below.

In 1986, Citigroup’s predecessor entered into an agreement with Sanford Weill (amended in 1987, 2001 and 2003). Under the agreement, as amended, Mr. Weill has agreed to serve as the Chairman of the Board of Citigroup until the 2006 annual meeting of stockholders, unless his employment is terminated earlier in accordance with the agreement. The agreement provides that Mr. Weill will receive an annual salary, incentive awards, and employee benefits as determined from time to time by the board. If Mr. Weill’s employment is terminated as a result of illness, disability or otherwise without cause by Citigroup, or following Mr. Weill’s retirement from Citigroup, all of his stock options will vest and remain exercisable for their full respective terms. In the event Mr. Weill’s employment is terminated as a result of his death, illness, physical or mental disability or other incapacity, he (or his estate as the case may be) will receive the annual salary and employee benefits in effect immediately prior to such termination through the end of the year during which such termination occurs or for six months following such termination, whichever is greater, and such additional payments relating to incentive, death, retirement, or other matters as may be determined by the board or a committee. In the event his employment is terminated by Citigroup, upon at least 120 days notice, without cause, or by Mr. Weill upon at least 30 days notice in the event of a breach by Citigroup of any of its obligations under the agreement, he will receive a lump sum amount in cash equal to the sum of his annual salary in effect prior to his termination through the effective date of his termination and the amount paid as his annual bonus for the prior fiscal year, prorated for the period of his employment during the fiscal year in which the termination occurs. Following such termination or retirement, Mr. Weill shall be subject to certain non-competition, non-hire, and other provisions in favor of Citigroup. These provisions shall be applicable for the remainder of his life, subject to his ability to opt out after a minimum period of ten years following such termination or retirement. So long as he does not opt out of such provisions, he shall be entitled to receive a supplemental pension benefit equal to a $350,000 annual lifetime annuity and access to Citigroup facilities and services comparable to those currently made available to him by Citigroup consisting of the use of corporate aircraft, car and driver, office, secretary and security arrangements. In addition, pursuant to the agreement by Citigroup’s predecessor in 1986 to match Mr. Weill’s previous employer’s health care benefits, Citigroup will continue to pay, for Mr. Weill’s lifetime and his spouse’s lifetime should she survive him, the premiums and out-of-pocket expenses associated with receipt of health and dental care benefits by Mr. and Mrs. Weill, and life and accidental death and dismemberment as well as disability insurance for Mr. Weill. Mr. Weill will also continue to receive a tax gross-up with respect to the imputed income arising from these benefits. Because neither the future cost of these facilities and services nor Mr. Weill’s usage of them can be predicted, the projected costs cannot be quantified. In addition, for a period of at least ten years following such retirement, Mr. Weill is required under the agreement to provide consulting services and advice to Citigroup for up to 45 days per year for which he will be paid a daily fee for such services equal to his salary rate at the time of his retirement.”