Old executives don't fade away. Increasingly, they stay on as company-paid consultants.
Consulting deals often last well into retirement and pay handsomely, with fat fees and frequent perks for part-time work, according to corporate filings with the Securities and Exchange Commission.
They also can be problematic. Tyson Foods pays former chairman Don Tyson $1.2 million a year for "advisory" services through 2011. But the SEC found that he received $3 million in perks and benefits — both while in office and in retirement — that were improperly disclosed.
Last week, Tyson Foods agreed to pay $1.5 million to settle the case and Don Tyson agreed to pay $700,000. In 2004, GE settled a similar SEC case for $2.5 million over improperly disclosed retirement perks to departed CEO Jack Welch.
Proper disclosure or not, "consulting agreements are a fuzzy area," says Bill Coleman of Salary.com. "They're more like pre-retirement income."
Consulting duties can also be ambiguous, leading pay experts to question their value. "As a practical matter, most CEOs don't turn to predecessors for advice," says lawyer Laura Thatcher, co-author of the Compensation Committee Handbook.
Among current deals:
- Motorola's Chris Galvin, who retired as CEO in 2004, gets $4.6 million for two years of unspecified work. That's on top of a $13.8 million supplemental pension.
- Service Corp. International ex-vice chairman B.D. Hunter gets $1.1 million a year through 2007 for "substantially" giving time to the funeral services provider.
- Retired New York Times CEO Russell Lewis is "available to provide such services as may be requested" under a two-year pact paying $1 million.
- For being "available to consult," PepsiCo says it's paying former vice chairman Abelardo Bru $1.9 million a year through 2008.
- Former First Cash Financial Services CEO Phillip Powell has a $500,000 annual deal through 2014 for "services as requested" by the pawn-store operator. Powell also gets a car, club membership and health and life insurance benefits.
A growing number of consulting pacts are signed long before a CEO quits. Hilton CEO Steve Bollenbach's five-year, $2.5 million advisory job doesn't begin until at least 2008. It was included in a 2002 job contract.
Other pacts offer built-in protection. For example, if AT&T CEO David Dorman departs within six months of the company's expected acquisition by SBC, he gets a three-year contract for services "as may be reasonably requested." Pay: stock currently worth $9.5 million.
Are former execs worth it? "The reality is, a lot of time, former CEOs are never utilized," says Paul Dorf of pay tracker Compensation Resources. "Consulting is just a ruse to provide more cash."
