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How the pension extension works for bonus enhancement

The public sector with it's $1 trillion shortfall doesn’t get all of the pension fun, Private companies can play as well. NBER paper

In the yearning for earnings and need for the CEO to be a “world class performer”, it is required to be financially innovative.  One of the great financial innovations and wonders of contemporary fiscal mythology is the Pension Extender. 

Everyday CEO in-boxes are filled with spam explaining to them how they too can “Extend! and Grow! their pensions to epic proportions!”  The wording of these messages may include phrases such as:

“no longer be plagued by periodic pension deficits and earnings under performance! Feel robust! Remember what it feels like to be a real Fortune 500 again!  Like many CEO’s, you may suffer an inferiority complexes at the size of your bonus.  Feelings of inferiority won’t help your insecurity or securities.  Fear not, the Pension Extender could help.  Call now!”

Pension Extension is a simple process, like many modern executive services, it is discreet, professional and pricey.  A CEO, feeling a bit inferior carefully selects and hires the specialist to come in and closely, but ever so gently examine his pension for him.  The specialist delicately tweaks, models and prods the pension, carefully comparing the specimen to others. 

Lo and behold, after much research, the pension specialist proudly informs the CEO that the problem is purely psychological and related to his assumptions about what a real pension looks like and how it operates.

The specialist informs the CEO ever so matter of factly that what the CEO really needs to do is simply get his assumptions up and everything else will happen as if by magic, soon Wall Street will be loving him like old times, with share related bonuses flying hot and heavy.

The pension specialist drafts a 20-40 page prescription explaining in detail, with charts, equations, spreadsheets and other pieces of sciency type stuff why the whole shrunken pension problem is psychological and that by vigorously extending ones assumptions on an annual basis a mere 100 basis points from 7% to say 8% everything would work out fine over time. 

Our CEO, newly re-affirmed in his fiscal virility immediately requests the CFO step into office for a chat.  The CEO smiles beamingly and proceeds to whips open his spreadsheet, showing off his new extended pension.  Judiciously the CFO considers the situation and what has been placed on the table before him.

For CFOs safety and risk aversion are paramount.  And right now, the CFO is concerned about the safety of his role.  The CEO’s new found pride, while truly impressive may impact his own bonus, after carefully choosing his words, the CFO humbly confides that alas, he is no expert in pensions .  He then congratulates the CEO on the wise decision to call in an expert to delve into these serious matters. The CFO immediately comes to the logical conclusion it is time to raise the pension return assumption and book the newly found extended pension’s surplus as Earnings relying on the experts advice.

After all of this of hot and heavy excitement in the executive suite, it time to place an anxious nervous call to the “independent” compensation consultant. It is imperative to assess and calculate the value of this new and enhanced fiscal virility.   What will such activities produce, what could they lead to? 

This action of calling the compensation consultant is of course vital for the sake of the firm.  For a management team of such capacity, such skill and raw unabashed talent must be retained, lest their eye rove elsewhere.  The company must now reciprocate management thoughtful actions, displaying its renewed amour for its tender and caring executive team.

The essential question arises before the compensation specialist about what should be done to bring bonuses inline with “fair” market compensation.  The firm must retain world class talent, but only with a “fair” offer.  The specialist, will look at the earnings performance delivered by the heated and vigorous performance of the CEO and CFO, “a real team effort, going to heights that many aspire to, but few reach”.  

Like all true and honest relationships, keeping ones partner is all about understanding and fairness.   Luckily, the compensation specialist is compassionate and knowing in the ways of the world.  He or she will facilitate conversations with the board about the nature of love and caring that only frequent and open fiscal activity can deliver.

The compensation specialist then crafts a careful report of 20-40 pages explaining how the management team are truly magical performers that come along once in a corporate lifetime and deserve to be compensated as such, if only for the sake of fairness in a world filled with tragic tales of broken hearts leading to broken balance sheets.  Magnanimous integrity and respect for all parties is of course what the process is all about. 

In the end all are happy in the knowledge that they have acted in the most modern and fair minded ways imaginable.  These “value added” actions are justified as being solely for the sake of the shareholders, “think of the little people who make it all possible”. 

The shareholders may now don a smile, lie back and think of England, as their World class management team goes to work on them with renewed lust and vigor for their future together.

Disclosure: "Long N. Krone", "Long Gold"