Some time ago, I’d come across a Forbes article (now lost to three or four intervening moves and office clean-outs that discussed the effects on pension plans on executive compensation. One really interesting fact was that (as of June 9, 2003) only a “handful” of companies (including GE and Verizon) had excluded pension “earnings” from the input to executive compensation calculations. To me, this falls into the same category as the company that drafts such poor documents that stock splits trigger any kind of comp threshold at all (and I’ve always dismissed this notion as anti-corporate rumor-mongering, but experience has taught me that all these crazy things happen at least once).

Does this treatment of pension “earnings” hold true at your companies, or have more interested boards at most companies cleaned this up? I support the use of free cash flow as the primary metric for executive compensation, although a detailed FCF analysis might give a board specific sub-targets for a C-level officer to achieve in pursuit of higher FCF. None of those, however, would be likely involve pension earnings or stock split numbers.

(On a related note, I was wondering whether seemingly “senseless” increases or decreases in pension plan earnings assumptions serve as an early indicator of operating and stock performance.)