Secular security for your executive benefits.

• Author: Tauber, Yale D.

Secular security for your executive benefits

In today's volatile business climate, companies can become unwilling or unable to pay for their promised executive benefits. That may mean top talent leaves the company. One benefits specialist says there's a way to secure the benefits--inexpensively. With the changing structure of business, many prominent names in the corporate world have ceased to exist, or have become shadows of their former selves. Some have succumbed to unwanted takeovers. Others have entered into hastily arranged "white knight" marriages. And still others, confronted with extreme economic difficulties, catastrophic liabilities, or litigation reversals, have sought refuge in bankruptcy court or disposed of valuable assets in a struggle for survival.

This has left many executives seriously questioning the security of their benefits. The focus of this concern has largely been on the increased potential for a change in control at almost any company. And it is true that a takeover, divestiture, or other change brings a certain amount of fallout within the executive ranks. However, the risk of a deliberate default may be more theoretical than real.

New management--even "raiders"--probably probably cannot afford to renege on executive benefit commitments they inherit, if they wish to continue to be able to attract and retain top senior talent. In reality, the greatest risk is more likely that the company will not have the resources to make good on its promises, particularly in cases where heavy debt has been assumed in a leveraged takeover.

Why not pay-as-you-go?

Obligations under supplemental retirement and deferred compensation arrangements can last as long as 30 or 40 years, and even financially sound organizations can fall on bad times--whether through business reversals or lawsuits or other significant catastrophic events. The fact that such relatively sound companies as Texaco, A. H. Robins, and Johns-Manville have been the subject of bankruptcy proceedings has heightened many executives' concerns about the financial risk.

Whether or not to fund any executive benefit program is a preliminary issue, separate from how to secure any funds set aside. Traditionally, supplemental retirement and deferred compensation arrangements were pay-as-you-go programs under which an employer simply paid benefits when they became due out of corporate funds. Some employers invested in corporate-owned life insurance to hedge their liability. However, executives remained unsecured creditors, vulnerable to both a refusal to pay and the financial inability to pay, just as if the investment had never been made.

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