NEW YORK (CNN/Money) -
The Securities and Exchange Commission is looking into former General Electric Co. Chairman Jack Welch's employment and retirement agreement days after Welch altered the deal, giving up access to Red Sox tickets, corporate apartments and company jets, the company said Monday.
The 1996 agreement, which the company said it has made public since then, included access to the firm's seats at Red Sox games and other sporting events as well as a Manhattan apartment for life, country club memberships and use of a company plane. In return, Welch serves as a consultant and representative of the company.
The agreement states that Welch's benefits are in recognition of his contribution to GE, for which he created more than $150 billion of shareholder value.
GE (GE: up $0.85 to $27.90, Research, Estimates), which said it will cooperate fully with the SEC, said it received a request from the SEC at 5 p.m. ET Friday, a day after its board approved Welch's proposal to modify his benefits package to include just an office and administrative support, perks the company traditionally has given to all retired chairmen and vice-chairmen.
An SEC spokesman declined comment Monday.
GE spokesman Gary Sheffer said the company would soon, if it has not already, discuss with SEC officials what specific documents they would like to see. Sheffer said Welch's contract has been written about widely and has been posted on the SEC Web site.
Scrutiny of Welch's contract comes at a time when federal regulators are cracking down on corporate fraud in the wake of such high-profile scandals at Enron Corp., WorldCom Inc., Tyco International and Adelphia Communications.
GE has worked hard to reassure Wall Street that its books are clean, and began holding quarterly teleconferences with analysts for the first time in its 120-year history last year in order to bolster that confidence. The company also provides significantly more detail in its quarterly earnings filings with the SEC.
However, that has not calmed jittery investors who have sent GE stock lower in the last year. Shares of GE traded up slightly at $27.55 Monday afternoon, well off the company's 52-week high of $41.84.
Sheffer said the agreement, which Welch himself proposed and said saved the company tens of millions compared with a straight cash compensation at retirement, is the first of its kind for GE in that it is both an employment and retirement contract. Like other salaried employees, Sheffer said, Welch had access to company boxes for sporting events as well as other kinds of services.
"This was Jack's contract for his final years of employment rather than just a retirement agreement," Sheffer said.
Welch decided to modify his contract after his estranged wife publicly disclosed its details in divorce papers. The agreement was signed off on Dec. 20, 1996.
Welch's successor at GE, Jeff Immelt, stood behind his former boss's decision.
"We admire the decision Jack Welch made last week to revise his employment and post-retirement agreement with GE," Immelt said Monday. "...This is typical of Jack's commitment for 40 years to GE, its reputation and its people ..."
Welch wrote in an op-ed piece in the Wall Street Journal Monday he was worried that changing his contract could bring scrutiny.
"Papers filed by my wife in our divorce proceeding became public and grossly misrepresented many aspects of my employment contract with General Electric," Welch wrote.
Welch and his wife Jane separated earlier this year after it was reported he had a relationship with Suzy Wetlaufer, the former editor of the Harvard Business Review. The Welches' prenuptial agreement, which provided some protection to his $900 million fortune, expired two years ago.
The former chairman defended his retirement compensation, saying he had fully disclosed the entire package to shareholders and that there is nothing improper about it.
Welch refuted some of the claims made by his wife, saying he's always paid for his personal meals, that he doesn't have a cook, and has no personal tickets to cultural and sporting events. He also said he rarely uses GE or NBC seats for such events. He said he's attended just one Boston Red Sox game in the past two years.
| || ||
|| || |
He said he faced a dilemma over whether to keep the contract unchanged and risk further public criticism, or to modify it, potentially raising questions about the validity of the original contract in the public's mind. But in the end, he decided to propose changes.
"One thing I learned during my years as CEO is that perception matters. And in these times when public confidence and trust have been shaken, I've learned the hard way that perception matters more than ever," Welch said. "In this environment, I don't want a great company with the highest integrity dragged into a public fight because of my divorce proceedings."
Welch proposed, and GE agreed to, eliminating all perks except for the "traditional office and administrative support given for decades to all retired GE chairmen and vice chairmen."
Welch also agreed to pay the cost of his use of all other facilities and services GE formerly agreed to provide such as planes and the company apartment, which he expects to total $2 million to $2.5 million a year.
"In other words, there will be no cost to GE or its shareholders for my use of these services," Welch said.
Welch also said he would consult on an as-needed basis at no cost to the company, and regularly teach courses at GE's management development center.
"In the end, this decision may not satisfy everyone, but it sure feels right in my gut," he stated.
Welch is credited with helping turn GE into the world's most valuable company during his 20-year tenure at the helm of the conglomerate, which makes a wide range of products including light bulbs and aircraft engines. GE is also the parent company of the NBC television network.
He did so not just with a policy of growth, but knowing when and where to prune as well. The Welch era included not only 993 acquisitions for GE, but also about 81,000 layoffs in his first five years alone.
GE's market capitalization stood at $402.4 billion when Welch retired a year ago, about a 5,000 percent increase in the stock's value, including dividends, while he was at the helm.