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Fat Cats' Little Secret

September 18, 2002

Shareholders should learn about perks and benefits granted to top executives through Securities and Exchange Commission filings, not from leaks during a messy divorce. So should federal regulators, who Monday began investigating the eye-popping post-retirement package that General Electric granted to long-time Chief Executive Jack Welch.

GE easily could have avoided the public relations fiasco that erupted after divorce documents of Welch's wife disclosed details of GE's reported largess. In 1996, at about the time GE's corporate board was readying Welch's compensation package, directors swatted down a Teamsters proposal to tie compensation to published formulas and submit packages to shareholder votes.

Six years later, organized labor has a strange bedfellow in the Conference Board, a business think tank that Tuesday scolded corporate America for creating conditions ripe for a continuing string of corporate scandals.

The respected executives, investment fund directors and former government officials who wrote the report called for all publicly traded companies to expense stock options, fully disclose benefit packages to shareholders and link compensation plans to long-term corporate goals rather than to the quarterly stock price. And they went a welcome step further by suggesting that companies alert shareholders before their executives sell stock in their company.

Welch clearly isn't cut from the same cloth as those who've ransacked Enron and other bankrupt companies. But "Neutron Jack" earned $16.7 million during his last year on the job and his net worth reportedly tops $900 million. Yet, board members granted the retiree access to corporate jets, use of a New York apartment and tickets to professional sports contests.

SEC investigators must determine whether GE accurately reported those perks and benefits. But investigations wouldn't be necessary if corporate boards did what the Conference Board is demanding--explaining pay plans not only "in plain English, but in plain sight as well."

Corporations should be free to concoct whatever executive pay formulas they desire--500 times what the lowest-paid production worker takes home or triple what Texas Ranger shortstop Alex Rodriguez earns during a season. But extravagant compensation packages usually run counter to shareholder interests. They must be explained upfront, and clearly, so investors know how a company is spending their money.

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