Truly golden years at Wendy’s…

September 21, 2011

In all the fuss about executive compensation, the focus is usually on the big dollops of cash, stock and perks that executives and boards lavish on one another. Retirement benefits often get overlooked, but they can be impressive in their own way — and maybe more importantly, they often slip under the radar.

Recently, pension sweeteners have caught our eye at several companies. We may be a little more attuned to it these days, since one of us is in the midst of reading Retirement Heist: How Companies Plunder and Profit From the Nest Eggs of American Workers, an excellent new book by former Wall Street Journal reporter Ellen E. Schultz. Among many other things, it shows just how lavish executive pension and retirement benefits can be. (Full disclosure: I worked closely with Ellen when I was at the WSJ, including on stories about executive compensation and retirement benefits.)

The employment agreement that Wendy’s (WEN) gave its new chief executive, Emil Brolick, is a great example of the kind of thing we’re talking about. In addition to the $1.1 million salary, $1.7 million target bonus and $500,000 signing bonus spelled out in his employment agreement, Brolick has a nifty deferred compensation option. Filed with an 8-K early this month, the terms specify that Brolick will get interest on his deferred pay, credited

“at a rate equal to the three (3)-month London Interbank Offered Rate (LIBOR), as reported from time to time in The Wall Street Journal (Electronic Edition), plus 500 basis points; provided, however, that, notwithstanding the foregoing, in no event shall such rate exceed 120% of the applicable United States federal long-term rate then in effect, so that in no event shall such rate constitute an ‘above-market’ rate within the meaning of Item 402(c)(2)(viii)(B) of Regulation S-K under the Securities Act of 1933, as amended. “

This dense bit of legalese essentially guarantees that Brolick will get 5 percentage points above LIBOR on his savings, or at the very least, the maximum possible interest payable on his deferred pay without triggering proxy reporting requirements.

That’s right. The interest rate is capped based, as far as we can tell, at what would require additional disclosure. Under SEC reporting rules (and Regulation S-K in particular), the main proxy compensation table only shows above-market interest paid on deferred compensation, and “above-market interest” is defined as anything above the rate set by the Internal Revenue Service as 120% of the applicable federal long-term rate (see a PDF of October’s rates). True, the smaller deferred-compensation table deeper into the proxy filing must disclose all interest paid — after all, the company’s on the hook for the full amount, not just the above-market amount — but few investors, and certainly few journalists, look beyond that main table.

Voila, big interest with minimal disclosure. Of course, there’s no way to know for sure whether skirting disclosure entered into the company’s calculations here. But it’s striking that the maximum interest for the deferrals happens to also be the threshold for disclosure.

Image source: wwarby via Flickr

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