(Bloomberg) — The gap in the U.S. workplace between the highest and lowest paid has been growing for years. Far less noticed has been the growing gulf in retirement pay.
While the top executives often continue to receive executive pensions as well as other benefits, most workers are left only with their 401(k) plans.
CEO compensation at large U.S. companies was 204 times higher than the pay of workers on average in 2013, up 20 percent since 2009, according to data compiled by Bloomberg. And the retirement benefits divide "perpetuates income inequality into old age," said Paul Hodgson, a corporate governance consultant who has researched executive compensation.
Some industries illustrate this trend more starkly than others. Big retailing chains, with their armies of lower-paid floor workers and their elite executive ranks, can be especially emblematic of the retirementgap.
Gregg Steinhafel, who stepped down as chief executive officer of Target Corp. in May following a massive credit-card data breach, received retirement plans worth more than $47 million. When he joined Target in 1979, the Minneapolis-based company offered generous retirement programs — so generous for executives that it included a deferred compensation plan that paid a guaranteed 12 percent interest.
That's quite a contrast with the average Target employees' retirement plans. Steinhafel's total package is 1,044 times the average balance of $45,000 that workers have saved in the company's 401(k) plan.
Steinhafel's Package
Steinhafel's package included $27.7 million from a combined pension plan for top executives and a deferred compensation plan, according to proxy filings. He was also paid $9.8 million from an earlier deferred compensation plan, as well as an additional $9.9 million in interest payments on that sum.
In addition, Steinhafel, a 35-year Target employee, got a $7.2 million cash severance payment and $4.1 million from vested stock awards when he left at age 59. This was on top of the more than $20 million in cash salary and bonus he earned over the prior five years and $56.4 million in realized equity gains over the same period, according to company filings.
Target said its directors have changed executive compensation programs to better reflect the retailer's commitment to pay for performance and that Steinhafel was the last top executive eligible for the deferred compensation plan that paid 12 percent interest. Steinhafel couldn't be reached for comment.
Compensation Ballooned
"In response to shareholder feedback, we embarked on a comprehensive overhaul of our executive compensation programs to even better align compensation with company performance," said Eric Hausman, a spokesman for Target.
For decades executive retirement savings plans were designed to replace CEO incomes, which were more modest than today.
"These benefits weren't originally intended to be huge wealth generators," said Gary Hewitt, director of governance research at Amsterdam-based Sustainalytics, which provides research to investors. "But it's become that as CEO compensation has grown to 200 to 300 times what average workers make. They're controversial and harder to justify now that companies have abandoned pensions for those in the ranks."
Many who save in a 401(k), by contrast, don't have enough for a secure retirement. At Target, those who work less than 1,000 hours aren't eligible to save in the plan at all.
'Take the Cake'
"Target throws workers a cracker and top executives take the cake," said Ron Pierce, a former worker at the retailer's distribution center in Stuarts Draft, Virginia. "Who can even spend $47 million? I'd like to see a chunk of that go for pensions for all employees."
Pierce, employed at Target from 2007 through 2012, advocated for better worker benefits and wages. He said he put in ten-hour shifts, lifting 5,000 cartons a day for $21 an hour. By the time he left, Pierce had $32,000 in his 401(k) account. Target matches 100 percent of workers' contributions, up to 5 percent of their pay. He also left the company with a one-time payout of about $4,600 from a pension, which the company ended for new employees in 2008.
The retailer's 31,000 retirees received an average annual pension benefit of about $4,000 in 2013, according to company filings. For current employees, Target has "below average" participation in its 401(k), according to BrightScope Inc., a San Diego firm that rates 401(k)s.
Decline of Pensions
