There’s a lot of concern these days about something called retirement security — the risk that millions of Americans will have too little saved up as they grow too old to work, leaving them dependent on Social Security (about half of retirees have nothing else).
That isn’t something John Hammergren has to worry about. He’s the chairman and chief executive of medical distributor McKesson (MCK), and the proxy McKesson filed on Friday says his pension already stands at a whopping $92.6 million. To put it in context, that’s enough to give $100 to every man, woman and child in McKesson’s home city of San Francisco — and still have more than $12 million left over.
Our regular readers may remember that we footnoted Hammergren’s pension last year as well, when it was a mere $83.4 million, meaning the benefit has grown by $9.3 million in a single year; over the last three years, it has grown by $44 million.
The reason for this stunning display of retirement security — from a mechanical standpoint anyway — is that Hammergren has been promised annual income in retirement of at least 60% of his pre-retirement income. And that percentage is guaranteed to rise like clockwork, by 1.5 percentage points a year, as long has he remains on the job, until it reaches 75%. (We estimate that it stands at about 72%.)
When can Hammergren start collecting this shareholder-funded nest egg? A month after he turns 55 — in about two years, give or take, since the proxy says he’s 53.
As mind-boggling as all those numbers are, it only begins to describe how secure Hammergren’s retirement really is. Because in addition to the pension, he has a bulging deferred compensation account — a sort of 401(k) on steroids. His has ballooned to $26 million, thanks in large part to high rates of interest the company has promised him over the years.
Unlike your 401(k), or mine, deferred compensation plans basically earn interest paid by the company. (Although the rate is often pegged to the returns of other investments, make no mistake: Few companies actually invest it for their executives, because of the tax implications. Rather, the account is just a big corporate IOU.) In McKesson’s case, the company pays a flat 8% on much of Hammergren’s balance, at a rate set by the IRS [PDF] that works out to 3.4% on part of what he’s socked away since early 2010. Just try getting that kind of fixed rate at your local savings & loan.
It adds up to big bucks, and much of it isn’t even reflected in the widely read summary compensation table reported in McKesson’s (or any other company’s) proxy. That’s because most interest on deferred compensation is essentially ignored by SEC reporting rules for that table (though it has to appear further down in the filing); instead, companies only have to report “above-market” interest — amounts over that IRS rate we mentioned a moment ago.
For Hammergren, that above-market interest added up to $774,611 in the last fiscal year (the other four top executives together collected another $622,754 in above-market interest for the fiscal year). It’s a lot of money, but just a fraction of the total growth in Hammergren’s account for the year: The executive put in $304,200 to his various deferral plans — and McKesson kicked in $2.67 million in matching funds ($243,360), dividends on restricted shares ($691,520) and interest ($1.74 million).
Hammergren has worked for McKesson for about 16 years, and has been CEO since 2001 — meaning his pension-plus-deferred-comp balances of $118 million works out to $7.3 million a year over his total tenure at the company, or $10.7 million since becoming CEO. That total puts him in the upper stratosphere of executives, in terms of retirement, even if he isn’t quite a Samuel Palmisano.
Beyond his 24-karat nest-egg and big paycheck — $1.7 million salary, $12.8 million bonus, and $14.7 million in stock and options — Hammergren’s perks are relatively modest for a gold-plated CEO. He received only $64,538 in company plane rides, $9,632 in home security, $9,361 for a car and driver, and $17,545 in financial counseling and tax prep.
Last year, we noted that Hammergren took a pay cut, despite still making a lot of money. He did again — his total pay worked out to $39.7 million, down from $45.7 million last year. At least in the last fiscal year, McKesson’s shares eked out a 3-point gain over the S&P 500, and it’s doing much better so far this calendar year.
We’ll see what fiscal 2013 brings.
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