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SEC Probes Welch's Benefits

Compensation: Retired GE chief executive has agreed to give back many of the perks in his deal.

September 17, 2002|KATHY M. KRISTOF | TIMES STAFF WRITER

General Electric Co. disclosed Monday that federal regulators are investigating its deal funding millions of dollars in retirement perks for former Chief Executive Jack Welch, who separately agreed to cancel most of the controversial benefits package.

Welch, long admired for his stewardship of GE and the profit he returned to shareholders, has seen his reputation tarnished in recent weeks and has been forced to defend the retirement deal that gave him free use of corporate jets, a luxury apartment in New York and even free flowers.

GE said the Securities and Exchange Commission, in an "informal investigation," has asked for information about Welch's employment and the post-retirement agreement he signed in 1996, apparently to examine whether the perks were fully disclosed to shareholders and the public.

Welch has insisted that all the benefits were disclosed, but said Monday that he would give up most of the free perks and begin paying GE $2 million to $2.5 million a year for rides in company planes and the use of a company-paid apartment. He will retain the use of a GE office and secretary, a benefit offered to every former GE chief executive, he said.

The 66-year-old executive's retirement package drew attention this month when Welch's wife listed in a divorce filing the scope and estimated value of what Welch was getting. The filing said that, in addition to paying for country club memberships, family phones and computers in five homes, GE paid for flowers, wine and maid service and provided tickets to sporting events and opera performances.

Welch, who was paid more than $16 million in 2001--his final year as GE's chief executive--maintained that his benefits were grossly distorted by his wife. Welch said in a guest column Monday in the Wall Street Journal that he was giving up the free perks, even though he thought they were reasonable, to save GE from further controversy. When reached Monday, Welch said that the column said everything he had to say and he would not comment further.

In the column, Welch noted that the retirement agreement was written in 1996, when he reportedly was being courted by other Fortune 500 firms. The board wanted to give him a cash retention bonus of "tens of millions of dollars," he wrote, but he opted for the benefits contract instead.

Welch said that despite believing the agreement was proper, he was giving it up because it could be misperceived amid the rash of corporate scandals this year. Welch said he decided Thursday to give up the benefits after discussing the matter with the GE board.

"In today's reality, my 1996 employment contract could be misportrayed as an excessive retirement package, rather than what it is--part of a fair employment and post-employment contract made six years ago," he wrote in the column. "For GE and its board to be dragged into these stories because of a divorce dispute is just plain wrong."

Corporate pay experts said the SEC investigation probably will focus on disclosure.

Although Welch's employment agreement stipulated that GE would provide him "continued access to company facilities and services comparable to those provided to him prior to his retirement, including access to company aircraft, cars, office, apartments, and financial planning services" for life, neither that agreement nor the company's latest proxy statement was specific about the cost of this arrangement.

Some experts said the concern may be less about the benefits Welch receives now than what he received while still CEO.

"Everybody is focused on the fact that Welch was getting these benefits in retirement, but it's clear that he was getting them all along," said Paul Hodgson, senior research associate at the Corporate Library, a Maine-based Web site that focuses on executive pay arrangements and corporate governance. "The question is whether some of the benefits and perks that he was allegedly provided should have been disclosed in proxy statements for the past 20 years."

In the proxy statement covering 2001, GE lists "other" compensation for Welch as including 10% to 14% interest on his deferred compensation savings, worth about $1.2 million for the year; the value of supplemental life insurance premiums paid on Welch's behalf at a cost of $1.06 million; and a savings plan that netted Welch $340,375 in addition to his $3.375-million salary and $12.7-million bonus.

But GE does not list the cost of the personal use of its private planes, cars and apartments.

The company considered these ordinary business expenses rather than perks, said Gary Sheffer, a GE spokesman. Until Welch retired, the company considered all of Welch's plane trips to be business--even if the corporate jet was used to fly Welch around on vacation, Sheffer said.

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