Posted on: Thursday, July 15, 2004

CEOs receive higher interest

By Bruce Meyerson
Associated Press

NEW YORK — Here's one way to get a higher interest rate on your savings: Become a CEO.

While many corporations allow top executives to defer part of their multimillion dollar pay for tax purposes, some companies give those executives interest on that deferred compensation that is far more generous than an ordinary person can get through a money market fund or a bank CD.

Some companies go even further, paying a guaranteed interest rate on par with the return an average investor might hope for from stocks, but with none of the risk.

About 60 percent of the companies in the Standard & Poor's 500 offer deferred compensation plans to executives, including 73 which pay above-market interest rates, according to the compensation consulting firm Equilar Inc.

It's a topic that rarely draws attention — as it did last year with news the New York Stock Exchange had been paying 8 percent interest to former chief Richard Grasso on part of his $139.5 million in deferred compensation — probably because the rules of disclosure invite confusion, if not obfuscation.

McKesson Corp., a major distributor of prescription drugs, disclosed in June that it owed $329,775 in "above market interest" to chairman and chief executive John Hammergren.

Similarly, Computer Sciences Corp. reported two weeks ago it owed $83,312 in "preferential interest" on deferred compensation for its chairman and CEO, Van Honeycutt, in its latest fiscal year.

But those dollar amounts do not represent all of the interest the companies owe these executives on their deferred compensation.

Unfortunately, it's impossible to tell how much more they are due thanks to the convoluted disclosure rules.

To start with, a company only needs to disclose interest owed on deferred compensation if the rate being paid is more than one fifth above the market rate being used for the calculation.

There's no fixed definition or benchmark to determine what the prevailing market rate is, so it's up to the company to determine what rate to use. However, the company isn't required to disclose the percentage it chooses or the actual amount it is paying above that rate.

Nor does it need say the total dollar amount of interest owed or the amount of deferred compensation on which it is being paid.