Despite Welch’s damage control, the outrage is not going away for him or for Corporate America. It turns out that Welch was not the only former CEO getting perks for life. After he cut his deal with GE six years ago, compensation pros were quick to dig his new contract out of SEC documents shareholders rarely scrutinize. Soon CEOs were waving Welch’s deal in front of their own boards, demanding similar treatment, pay consultants and corporate directors tell NEWSWEEK. While no CEO admits to mimicking Welch’s contract, the executive elite began getting similar deals. IBM’s then CEO Lou Gerstner renegotiated his contract to extend his perks for 20 years after retirement. Larry Bossidy, the former Honeywell CEO, cut a perks-for-life deal, which he says is much less generous than Welch’s. Emerson Electric’s former CEO Charles Knight–who approved Gerstner’s deal as an IBM director–got his perks extended 15 years beyond retirement. “Jack’s contract became the gold standard,” says one pay consultant.
But now Welch’s perquisites in perpetuity have become the new symbol of CEO excess, replacing stock options as the most criticized form of “stealth compensation.” Investors are demanding a fuller accounting of these perks, which were much more detailed in Jane Welch’s divorce filing than GE’s 10K. “We’re getting better data on this from divorce courts than we are from SEC documents,” says Nell Minow of the Corporate Library, a –shareholder watchdog. The SEC, which is investigating Welch’s contract, is considering tougher disclosure rules for all retirement deals. But even if the SEC determines the Welch deal was legit–as Welch and GE insist–critics say it is still immoral. “It’s like someone who goes to an all-you-can-eat buffet and stuffs their pockets, their pants and themselves,” says Charles Elson, director of the Center for Corporate Governance at the University of Delaware. “It may be legal, but it’s extremely rude.”
Directors are even getting heat from their brethren. The Conference Board issued a report from business leaders last week calling on boards to show more backbone in pay negotiations. “There is a tendency to put cocker spaniels on compensation committees, not Doberman pinschers,” said billionaire investor Warren Buffett. In the free-agent economy of the ’90s, boards feared losing their CEOs if they didn’t pay up, says Barbara Franklin, who sits on five boards. Not anymore. “All the directors I know are sitting back and saying, ‘My good-ness, we need to rethink all these compensation schemes’,” she says.
Welch is no doubt wishing he could rethink this whole episode, now that he’s being lumped in with bad-boy CEOs like Tyco’s ex-chief Dennis Kozlowski, accused last week of pillaging his company to furnish his Fifth Avenue apartment with oddities like a $15,000 “dog umbrella stand.” And Welch’s wife, Jane, remains on the offensive. Her lawyer, William Zabel, told NEWSWEEK that Welch brought this on himself by offering an “insulting” $15 million to settle their divorce. “Some people would rather win than settle,” huffs Zabel.
So will other CEOs give up their perks? Gerstner declined to comment. Bossidy insisted to NEWSWEEK his perks are reasonable and “worth dramatically less than Jack’s.’’ Through a spokesman, Knight denies patterning his retirement on Welch’s, and contends his deal is fair.
But when it comes to executive excess, it’s hard to trump Tyco’s Kozlowski. He didn’t bother with board approvals to tap company funds for personal extravagances, according to a company report last week, such as a $1 million birthday party for his wife in Sardinia last year. The party, which sported a gladiator theme, included an ice sculpture of Michelangelo’s David with vodka streaming from his penis into crystal glasses. And among the $11 million Tyco spent furnishing Kozlowski’s New York apartment were such fineries as a $6,000 shower curtain, a $2,200 gilt wastebasket and a $17,100 “traveling toilette box.” Kozlowski is not the only CEO charging his company for interior design of his corporate apartment, says Kozlowski’s decorator, Wendy Valliere of Seldom Scene Interiors of Nantucket, R.I., and he’s not the most extravagant. “This only seems lavish if you shop at Crate and Barrel,” she says. “This is business as usual.”
Still, all this CEO excess leaves mere mortals wondering: why do fat cats always want someone else to pick up the tab? “If you’re very, very wealthy,” says Minow, “nothing you buy will give you as much of a charge as getting something for free.” But Jack Welch is now learning there’s no such thing as free love or a cheap divorce. He split with his wife after his affair with the editor of the Harvard Business Review. And for that indiscretion, Jane Welch expects America’s most revered CEO to pay up. “His net worth is $800-to-$900 million,” claims Jane’s lawyer Zabel. With that kind of money, Jack Welch now has a chance to set a new gold standard. But this time it will be in a courtroom, not a boardroom.
