Estimated Annual Retirement Benefit:  $6,518,459*

*Calculated by The Corporate Library for the AFL-CIO Executive PayWatch

Pfizer CEO Henry "Hank" A. McKinnell will receive an expected annual pension benefit of $6,518,459 at age 65. Should McKinnell decide to take a lump-sum payment instead of an annual pension, he will receive more than $83 million in cash—worth nearly twice the value of shares he held as of Dec. 31, 2005.[1]

It’s a good thing for McKinnell that Pfizer’s pension plan is so generous to him. During McKinnell’s term as CEO over the past five years, Pfizer’s stock price has underperformed its peer group and the Standard & Poor's 500. The $100 invested in Pfizer stock on Dec. 31, 2000, would be worth just $55.7 on Dec. 31, 2005, including dividend reinvestment.[2]

Pension plans are supposed to provide employees with guaranteed retirement income. The problem with extraordinary large executive pensions is that they turn retirement plans into CEO wealth-creation devices. Because a CEO’s pension benefits are not at risk, they also can undermine the goal of linking CEO pay to performance.

So how did McKinnell get such a large pension benefit? Unlike many companies’ executive retirement plans that are calculated only using cash compensation, Pfizer’s executive pension benefit formula also has included stock. In 2004, McKinnell received more than $5.8 million in stock awards that will be included in his pension benefit formula.[3]

At the end of 2000, Pfizer stopped including future stock grants in its pension formula. However, Pfizer allowed then-existing grants to continue to be included in its pension calculations as they vested. Without this stock enhancement, The New York Times estimated that McKinnell’s pension lump-sum value would be worth only $37 million.[4]

Starting in 2006, Pfizer’s board adopted a new policy on pension benefits for executives. Future pension benefits will have to be submitted for shareholder approval if they exceed 100 percent of a senior executive’s “final average salary.” The catch? The board defines salary to include bonus for the purpose of calculating the pension cap for its executives.[5]

One might think that McKinnell would be a strong supporter of Social Security’s defined benefit structure given that he has such a big pension. To the contrary, McKinnell is the chairman of the Business Roundtable, an organization of executives that has supported groups in favor of Social Security privatization.[6]