'Obscene' Pension Plagues Swiss Business Icon

February 18, 2002 (PLANSPONSOR.com) - Picture a once-storied company, suddenly struck by financial troubles - troubles that have now drawn the size of pensions paid to its former executives into question.

No, it’s not Enron – or even Global Crossing.

That’s a quick summary of the current travails of Swiss industrial group ABB Ltd., which has just reported its first-ever annual loss – and now says it will ask two former chief executives – one the legendary Percy Barnevik – to return some of that retirement pay.

Barnevik, 61, who acknowledged some of the blame for ABB’s current woes when he left the chairman’s job, received 148 million Swiss francs (about $87 million) in pension benefits, according to ABB.  ‘One can say that it was an American payment system in a European environment,’ Barnevik told Swedish daily Dagens Nyheter, when asked why the ABB benefits had been so large. Among the controversies is the taxation of the payment – Swiss tax laws apparently don’t tax pensions.

ABB is also pursuing partial repayment of pension and other benefits from Goeran Lindahl, Mr. Barnevik’s handpicked successor as CEO. Lindahl, who reportedly received a pension of 85 million Swiss francs, was forced to resign in late 2000 after failing to rekindle growth at ABB. 

Information Insights
The new information about the compensation package appeared after ABB obtained a listing on the New York Stock Exchange (ticker: ABB), requiring the disclosure of far more financial information.

According to Dow Jones, ABB’s eight-member board, which includes Jacob Wallenberg, an executive vice chairman of Investor, began questioning Barnevik’s pension during meetings last summer. Three outside directors, Ebner, Vice Chairman Robert Jeker, and Jurgen Dormann, formed a compensation committee and investigated the pension – eventually concluding that the benefits had not received the review and approval of the ABB board.

Lars-Eric Forsgardh, managing director of the Swedish Shareholders’ Association, told Reuters on Friday the amount Barnevik was paid was “obscene’ and had damaged the reputation and credibility of Sweden’s business community.

Emerging Icon

Barnevik became a business icon of sorts, pulling off one of Europe’s first big cross-border corporate marriages – the 1987 merger of Swedish Asea and Swiss Brown Boveri to create ABB.  Barnevik served as ABB’s chief executive from 1988 until 1996. He served as ABB’s nonexecutive chairman until November, when he resigned that post and acknowledged some responsibility for ABB’s poor performance in recent years.

Ripple Effects

Last week Barnevik relinquished the chairmanship of Swedish investment group Investor AB as the controversy over his ABB pension grew. He had originally planned to step down as Investor chairman at the company’s annual meeting in April – but accelerated the date after news of the pension controversy spread.

In January he stepped down as chairman of Swedish toolmaker Sandvik AB, though he remains chairman of drug maker AstraZeneca PLC, in which Investor is the second-largest shareholder.

He is also a director of General Motors, and has been since 1996.  However the automaker is said to be rethinking that role, according to the Financial Times. Barnevik is partly responsible for overseeing the automaker’s corporate governance guidelines.

Starting Point?

ABB posted a net loss of $691 million (788.2 million euros) for 2001, down from net income of $1.4 billion a year earlier. The loss was attributed to the global economic slowdown, as well as a $470 million charge set aside to cover future asbestos liability in the US.

The company has so far cut 7,200 jobs as part of a plan to reduce its work force by 12,000 by the end of this year. ABB also plans to cancel its dividend for 2001 as part of an effort to preserve cash and pay down debt, according to Dow Jones.