Sunday, March 18, 2007

Safe Deposit

In Proxyland the word “enough” is never used, except when referring to the title of an awful movie starring J. Lo.

Imagine you’re a 54-year-old CEO whose total compensation was nearly $6 million last year, and you didn’t do too badly in past years either. Now imagine you also made $26 million in 2006 by exercising stock options and you still have a bunch more of those babies at nice low strike prices. You’ve built up great retirement benefits, too: Had you put yourself out to pasture at the end of last year, you’d have received…oh, hell, I’m not being paid enough to decipher all your company's pension charts and footnotes. Or paid anything, for that matter. Suffice it to say that just one of your company’s three pension plans would have yielded you a lump sum of more than $6 million.

OK, this isn’t really about you. This is about Michael B. McCallister, President and CEO of Humana Inc. (HUM). I've chosen him to illustrate a point made in a recent post, which is that in Proxyland one’s accumulated wealth is believed to have no bearing on one’s need for retirement income. Humana’s executive retirement plans (described in its proxy) are structured to yield Mr. McCallister the annual equivalent of half his pre-retirement salary plus bonus, juiced up to the most lucrative 3 years of the last 5 he works. The millions he’s accumulated thanks to stock options? Irrelevant.

So Humana just keeps pumping more into Mr. McCallister’s pension. To do otherwise would run afoul of one of the natural laws of Proxyland, known as Conservation of Retirement Contributions No Matter How Rich You Already Are.

Back to that movie I mentioned. OK, I didn’t see it and don’t know for sure it’s terrible, though one critic wondered if the script had been written "using Mad Libs." I do know it starred J. Lo, and for me that’s enough.

p.s.: As a backup plan, Mr. McCallister might avoid having to resort in his later years to eating cat food (or–God forbid–joining one of Humana’s health plans for folks on Medicare) by engineering a change in control of the company before he leaves, which would yield him a nice $52 million.