Another day, another U.S. corporation cuts retirement benefits for its workers while fattening benefits for the people in its executive suite.
Storied manufacturing giant 3M MMM, -0.73% has announced that it is freezing the company pension plan for nonunionized workers in favor of a 401(k). While workers will keep benefits that they have accrued so far, new contributions will end in 2028.
But there’s one employee who won’t be feeling the pain: Mike Roman, the company’s chair and chief executive.
Company accounts reveal that Roman, 63, has received a staggering $19.3 million boost to his company pension (and other nonqualified deferred compensation plans) in recent years, according to statements filed to the Securities and Exchange Commission. This includes a $3 million gain in 2021, $7.7 million in 2020, $5.6 million in 2019 and $3 million in 2018.
This has left him in line for a company pension so gigantic that the present value is $25.8 million — enough to generate a guaranteed lifetime income of $165,000 per month, according to immediateannuities.com.
That’s not all. Since taking over as CEO in 2018, Roman has also been paid $65 million in cash, stock, options and other benefits. None of these numbers, incidentally, include last year’s pay or pension benefits. Those won’t be disclosed until the spring.
We have become so inured to these rich executive payouts, they may not even raise an eyebrow. The usual justification is that stockholders have to pony up to get the top talent, and that they pay for performance.
In the case of 3M, I can only respond with laughter.
During Roman’s nearly six years as CEO, 3M’s stock has been a dog with fleas. Since he took the helm at the company in July 2018, the stock has managed the difficult feat of underperforming the Dow Jones Industrial Average DJIA, the S&P 500 SPX, an equal-weighted version of the S&P 500 and every other stock that the company itself names in its filings as its “executive peer group.”
If you had invested $10,000 in 3M on the day Roman took over, then held onto the stock and reinvested all dividends, today you would be sitting on about $7,000.
That’s ignoring the ravages of inflation, which have made that balance worth even less. It’s also ignoring taxes. If you had invested that $10,000 in the SPDR Dow Jones Industrial Average exchange-traded fund DIA, which tracks the Dow, you’d have roughly $17,400.
If you’d invested in the S&P 500 via the SPDR S&P 500 ETF SPY, you’d have more than $19,000.
The results would be similar if you’d invested in one of the companies in 3M’s self-identified peer group instead. While a couple of names have changed since 2018 — usually in response to mergers and so on — most remain the same. They include Deere & Co. DE, -0.95%, which would have more than tripled your money over the same period, along with Caterpillar CAT, -0.56%, Illinois Tool Works ITW, -0.13% and Procter & Gamble PG, +0.06%, each of which would have more than doubled your money.
A look at 3M’s annual accounts shows a mixed bag. From 2017, the year before Roman became CEO, to 2022, the last full year for which we have numbers, 3M raised net income by 33% and earnings per share by 29%. On the other hand, operating cash flow actually fell by 10%. Have stockholders received value for money for their $85 million in largesse? You make the call.
The company declined to comment on Roman’s compensation.
And what of the pension plan? The company says the latest announcement will only affect 9,000 of its more than 32,000 nonunionized workers in the U.S. “This situation starkly illustrates the benefits of forming a union and collectively bargaining a contract,” said John Shinn, international secretary-treasurer of the United Steel Workers union. “Management cannot unilaterally alter or eliminate benefits for our members. Our agreements with 3M protect USW members, and management understands its obligation to bargain over any changes it might want to make, including to our pensions.”
This news does not come in isolation. Other companies, such as IBM, are also making consequential changes to retirement benefits for workers.
A spokesperson for 3M explained its latest move: “By moving to a 401(k) retirement plan structure, the company is focused on providing employees with more flexibility and control when it comes to investing in their future,” she told MarketWatch by email.
The demise of the traditional or final-salary pension plan is a long-running saga. In 1975, 35% of nonfarm U.S. workers were participating in a traditional defined-benefit pension plan. Today that figure is 8%.
Although the total number of workers participating in these plans has fallen by nearly three-fifths, the total number of people in the plans — including those who are already retired and drawing benefits — has barely changed. That’s because more workers are living longer. The total number of retirees in defined-benefit plans has tripled over that period, Labor Department data show.