1901 – 2007 ODYSSEY:
2007 MEDICAL OPTIONS FOR SOLUTIA CLASS V RETIREES
By Steve Hinds – 03/27/06
As retirees we’ve now reached the end-game and ultimate fall-out of Bob Shapiro’s flawed strategy. That strategy has virtually destroyed Solutia and will now seriously impact future medical costs for most retirees and their spouses.
In the hope that it will help you in your own endeavors, here's my latest assessment of medical costs for my wife and I when we lose our Solutia medical coverage at the end of 2006. All figures are in 2006 dollars as 2007 premiums, etc. won't be defined until late December, 2006.
1) 2006 COSTS VIA SOLUTIA/UNITED HEALTHCARE MEDICARE COMPLETE HMO WITH PRESCRIPTION DRUGS FROM MEDCO HEALTH:
· Annual premiums for UHC MC HMO = 12($134.12) = $1,609
· SRH share of drug costs (100% basis is $2,543) = 528
· JMH share of drug costs (no drugs required) = 0
TOTAL COSTS $2,137
Note: According to my files, the BCBS premiums are $266.67/month or $3,200 annually for two people compared to the $1,609 noted above for the UHC HMO. That would yield a revised total of $3,728 had we been with BCBS in 2006. However, I must tell you that the HMO has met all of our needs without any difficulties whatsoever.
2) 2007 COSTS VIA AARP HEALTH CARE OPTIONS (800/523-5800) AND THE AARP MEDICARE Rx DRUG PLAN (888/867-5564):
· Monthly premiums for an AARP/Hartford/UHC "Plan F" are $162.75/month for SRH (will be age 70 at enrollment) and $144.25/month for JMH (age 69). Allowing for a 5% discount for simultaneous enrollment of husband and wife, plus a $2/month discount for Electronic Funds Transfer to pay the monthly premiums, the total net monthly cost is $289.65 or $3,476 annually.
· My Medicare Part D Drug Costs via the AARP MedicareRx Plan will be $1,629 annually which includes my costs in the “Doughnut Hole.” Jean's cost will only be the Part D premium of $332/year.
· Our 2007 medical expenses are therefore expected to total $5,437 – which represents a $3,300 annual increase (154%) versus the 2006 HMO estimate shown above.
3) OTHER MISCELLANEOUS INFORMATION:
· Keep in mind that your medical premiums (doctor/hospital) will be based upon your age and state of residence as of 1/1/07.
· You can enroll for medical coverage over the phone about 6-8 weeks before the end of the year. However, the applications will be mailed back to you and your spouse for signatures – plus attachment of a copy of the official termination letter we will receive from Solutia. The same applies to the Part D Drug coverage applications which require signatures – plus attachment of the Creditable Prescription Drug Coverage Notice that we received from Solutia in early November, 2006.
· If you get lost using the "Medicare Drug Plan Finder" on the "http://www.medicare.gov/" website, go to "www.AARP.org/bulletin/medicare/quick_route.html/?" and print a copy of the instructions for the "Quick Route Through The Medicare Drug Finder." It will save you a lot of time.
· I recently checked with the AIChE/LIICA organization mentioned in my "2/5/02 Medical Options for Solutia Class V Retirees" article. In 2001 they offered a $66/month premium per individual for ages 65-74 – which was substantially below the AARP monthly premium of $125.25. Unfortunately they have increased their age 70 premium to $167/month now and, in my mind, are no longer a valid alternative to the larger, more established organization represented by AARP/Hartford/UHC.
I hope this information is of help to you. It’s unfortunate that we’ve reached a point where thousands of dedicated Monsanto retirees can be treated this way after spending a lifetime building Monsanto to a preeminent position in its industry. And – it’s all because of the flawed strategy and greed of Bob Shapiro. Perhaps the commentary which follows will be of interest to you.
Best wishes to all.
Bill McClellan’s 5/6/05 St. Louis Post-Dispatch column entitled: “Bankruptcy Reform Should Be Extended to Corporations.”
Like most Americans, I paid little
attention to the recent debate in Washington about bankruptcy reform. Oh sure,
it seemed amusing that the Congress and the president –
people who have plunged the country headlong into debt –
tough about individuals doing exactly what they, the president and the Congress
have been doing the past five years. That is, to spend so much more than they
have that it recalls the old joke – I am living so far above my means
that the two of us are now legally separated.
Who knew where the truth was in this great debate? Had bankruptcy become too easy? Had it become just another sign of society slipping south? Sort of like kids wearing baseball caps backward? Or was this the work of craven politicians doing the bidding of the credit card companies that send offers upon offers to the very kids who wear their baseball caps backward?
As those kids would say, "Duh."
In other words, it no longer matters where the truth was. Congress has reformed the bankruptcy laws. It will now be more difficult for individuals to walk away from their debts. Lately, though, I've been thinking that maybe the reforms should be extended to corporate bankruptcy.
These thoughts have sprouted while casually following the ongoing saga of Solutia, which was "spun off" from Monsanto in 1997 and went into bankruptcy in 2003. I've seen two recent announcements from the company. First came the bad news: The stock is worthless. "Solutia believes that its plans of reorganization will result in cancellation of its existing shares of common stock." The statement went on to predict that people holding the stock were "unlikely to receive any consideration." Post-Dispatch business columnist David Nicklaus suggested that a lottery ticket seemed a more reasonable investment.
I mentioned good news, and there was some. The bankrupt firm is already paying its executives $25 million in incentives – that is, of course, on top of their salaries – and now has scheduled another $15 million bonus plan. CEO Jeffrey Quinn is in line to get another $3.75 million. Executives Luc De Temmerman and James Sullivan are in line to get another $2.25 million and $1.5 million respectively. It turns out this sort of thing is quite common in corporate bankruptcies. You need steady hands at the wheel at a time like this and so forth and so on.
I suppose that's true, but still, if I were a stockholder who was getting nothing, I think I'd question the bonus plans.
I am not a stockholder and that, too, ties into this bankruptcy. Several years ago, Robert Shapiro, then the CEO of Monsanto, invited me to lunch at the company headquarters, and while we were there, I noticed Mao-like "Thoughts of the Chairman" clichés hanging in the hallways. I asked about them and Shapiro chuckled modestly and said he felt silly about these slogans, but they were good for morale. Good for morale? Had I owned stock in the company, I would have sold it. How could a man so out of touch with reality run a company?
Out of touch with reality maybe, but not stupid. Some Solutia stockholders have claimed that Shapiro saddled Solutia with more than $1 billion in debt at the time of the spin-off, and this move, while dooming Solutia, propped up Monsanto so that Shapiro could gain more than $112 million in stock options and bonuses.
Our current political leadership is mostly concerned that Shapiro's heirs never have to pay a penny in "death tax" on that $112 million, but again, I wonder. Part of the debt stuck on to Solutia, by the way, had to do with retiree obligations for former Monsanto workers. Health care, pensions, that sort of thing. The future of those benefits is uncertain.
But while the retirees fret and the stockholders are told their stock is worthless, the new execs make millions and Shapiro remains on cruise control. Last year, he was named to the board of the New York Stock Exchange. It's enough to make me think that our congressional reformers ought to turn their attention toward the corporate boardrooms.
SRH Email of 5/11/05 to Bill McClellan of the St. Louis Post-Dispatch:
I read your May 5, 2005 column on bankruptcy reform with interest, particularly the commentary regarding obscene incentive compensation plans for Solutia's executives (including new additions during the pending bankruptcy) and your personal assessment of Robert Shapiro's managerial ability. I'm simply one of thousands of Monsanto stockholders and retirees who are in total agreement with your views on both subjects and particularly your question, "How could a man so out of touch with reality run a company . . . and now be a member of the Board of Directors of the NYSE?"
As background, I was fortunate to have worked for Monsanto for thirty-four years in the days when everyone believed in the old concepts of trust, respect and mutually common goals and rewards. We truly felt proud of our joint efforts and accomplishments. We were also blessed with the opportunity to work with so many capable, high quality people of unquestionable integrity that we simply took it for granted that any other philosophy or behavior was unacceptable. Fortunately, I retired in early 1993 which was long before Shapiro's flawed corporate strategy was conceived and implemented. That strategy has almost destroyed Solutia and seriously impacted the remainder of Monsanto. The company that John F. Queeny founded in 1901, and which grew into the third largest multifaceted chemical company in the U.S. with annual sales over $9 billion by the mid-1990s, doesn't exist any more.
In addition to the shortcomings of Bob Shapiro which you identified in your article, you need to know several more historical facts. After spinning off a debt laden Solutia in 1997, Shapiro acquired two seed companies (corn and wheat) in 1997-1998 at an inordinately high cost which was far beyond their true market value. This then created an intolerable debt load for Monsanto (greater than 50% of total capital) and a financial crisis which forced Shapiro to put the company up for sale. A purchase was subsequently considered and rejected by American Home Products, but the company was eventually acquired by Pharmacia in 2000. Pharmacia then created an IPO of 15% of the Agricultural Products business later that year and in 2001 stated their intention to spin off the balance to shareholders in 2002.
That series of events then meant that Pharmacia would be left with only Monsanto's G.D. Searle Pharmaceuticals business which included the blockbuster drug Celebrex (their original objective) – while the balance of the original Monsanto Company was left in two separate pieces to struggle. Additionally, Monsanto had to subsequently take a goodwill impairment charge for the excessive acquisition cost of the two seed companies WHICH REDUCED ITS 2002 NET INCOME BY $1.8 BILLION! Unfortunately, Shapiro wasn't personally adversely impacted by any of these events as he had already left the company with $112 million in stock options and bonuses. Instead, only the stockholders, employees and retirees of the two companies were left holding the bag and all suffered significantly. Something seems very wrong here, doesn't it?
Frankly, I've always been a staunch supporter of an old naval tradition. It's the one that says if a Captain loses his ship because of his bad judgment, he's the last man to leave the ship and, if necessary, goes down with it. He does NOT take the only life vest, all the gold in the hold, and board the only lifeboat while watching everyone else go to the bottom of the ocean. Nor does he get appointed to the NYSE Board of Directors.
Here's a few closing comments.
First, there's no need for the outrageous incentive compensation plans that we're seeing today for senior executives of any company. A base salary and normal bonus program tied to very challenging goals devised by the Board of Directors are all that can be justified. Anything more means that both the Senior Executive Group and the Board of Directors are not doing their job – and should be replaced immediately. There are always very capable people readily available to fill openings without requiring excessive compensation plans.
Second, it's obvious to me that the Board of Directors of most corporations are clearly not doing their job. If they were, we wouldn't have: a) Approval of the flawed strategies that many companies have pursued; b) The "cooked books" that have destroyed many corporations, stockholders, employees and retirees in the last five years; and c) The outrageous incentive compensation plans discussed earlier.
Third, each and every member of a Board of Directors has a non-delegable fiduciary responsibility – first to the stockholders, and secondly to employees and retirees as they were the individuals ultimately responsible for achieving the growth and profitability of the corporation. The latter group also generally own company stock in their 401(k)s and personal investment accounts.
Lastly, it's clear that the members of a Board of Directors must individually and collectively be held legally accountable for the success or failure of the corporations they oversee! Anything less is nothing but subterfuge!
Stephen R. Hinds
Bill McClellan’s Email reply of 5/12/05
Thanks for the note, Stephen. I have long argued those very points about boards of directors – and it was criticism of Monsanto’s board that led to my long ago lunch with Shapiro.
Bill McClellan’s 3/17/06 St. Louis Post-Dispatch column entitled: “Give Executives a Break – Stop Foisting All That Money On Them.”
In 1938, Congress established a minimum wage of 25 cents an hour. There were some folks, I’m sure, who thought a minimum wage smacked of socialism and ran counter to the free enterprise system. But most of the country felt it was all right, even necessary, to tinker with the free enterprise system.
I think it’s time we tinker again.
This time, we ought to tinker at the top. Sixty-eight years ago, the problem was at the bottom. People making too little. Today, the problem is at the top. Boards of directors, which were originally supposed to watch out for shareholders, have become corrupted. Executives are now running those boards and – no surprise – watching out for executives.
Consider what a board just approved in New York state. A regional bank is being sold. There will be layoffs among the workers, but the top three executives will get payoffs of approximately $288 million. The big boss, John Kanas, will get about $185 million.
Think about that figure for a moment. Bear in mind, Kanas did not found the bank. He is – or was – just another employee. But because he gets to negotiate the sale, he gets $185 million. The men on the other side of the table enjoy being generous because they understand that next time, they might be doing the selling.
It was only 10 years ago that our own Andy Craig negotiated the sale of Boatmen’s Bank. Craig did not found the bank. He was just the employee running it. But because he got to negotiate the sale, he got $10 million, and a stipend of $1.5 million per year for life.
If his wife survives him, she will get $1 million per year for life. As regular readers might remember, I thought that was ridiculous.
Ten years later, Craig is probably kicking himself. Compared to Kanas, he got nothing.
And, of course, executive salaries continue to skyrocket. In 2004, the last year for which I can find statistics, the average CEO salary for publicly traded companies in the St. Louis area was up 36 percent from the previous year. I don’t want to be mean about this, but does anybody think that our executives are doing an especially good job? Is the region thriving?
No, but the boards, made up of executives, keep finding imaginative ways to reward executives. Most of the stuff is ludicrous. I remember when William Stiritz announced he’d be stepping down as CEO of Ralston-Purina. His pals – I mean, his board – gave him a stock option deal conservatively valued at $16.6 million. The reasoning? “To facilitate a greater focus by Mr. Stiritz on succession planning.”
He was already making more than $1 million a year in salary alone. He couldn’t focus for that? Besides, he didn’t focus, anyway. He ended up picking two guys. Co-chief executives. How well did that work? Ralston is now a wholly-owned subsidiary.
Speaking of stock options, let’s just stop them. They’ve become a scam. If an executive has confidence in the company, let him buy stock at the same price everybody else pays.
People can still get as rich as Midas if they are entrepreneurs. Be a risk-taker and start your own company; the sky is the limit. But employees of publicly traded companies will have to live with a maximum wage. No golden parachutes if the company is sold. And no accounting tricks. No bonuses. If the company performs well, terrific. You probably deserve the maximum wage.
What should it be? I think $1 million, perhaps $1.5 million ought to be enough for any employee.
In a sense, we’ll be doing the executives a favor. Look at the trouble these guys get into under the present system. Think about the guys at Enron. Letting them make as much as they can carry is like leaving the keys in an unlocked car. Give us a maximum wage and don’t help a good executive go bad.
SRH Email of 3/17/06 to Bill McClellan of the St. Louis Post-Dispatch
Once again you've written a great
column on executive greed in today's corporations and the total lack of proper
fiduciary oversight by Boards of Directors. The old American standards of
honesty and ethics are no longer a part of life in most corporations.
What a tragedy the last ten-to-fifteen years have wrought!
Bill McClellan’s Email reply of 3/17/06
Thanks, Steve. Did you see David Nicklaus’ column today. He was writing about an effort to democratize the boards. It's a joke. He mentioned Ameren. One of their directors is the disgraced Richard Liddy...
Bill McClellan’s 3/20/06 St. Louis Post-Dispatch column entitled: “Journal Story Builds Case for Crackdown on Stock Options.”
Friday’s column was about executive compensation. It’s wildly excessive, I wrote, and that’s because executive compensation is set by executives. Technically, of course, executive compensation is set by a company’s board of directors, but the directors are almost always executives from another company. So they have an obvious interest in pushing executive pay onward and upward.
And they are creative about it. Too creative. One of the creative things I mentioned was stock options. While stock options might make sense for a small, start-up company that has prospects but little capital, they make little sense for large established companies. Allowing executives to establish executive compensation is like leaving the keys in an unlocked car. Let’s establish a maximum wage, I suggested, and let’s not help a good executive go bad.
That’s what I wrote for Friday.
Saturday morning I picked up The Wall Street Journal. The lead story was about stock options. The headline read: “Some CEO’s reap millions by landing stock options when they are most valuable. Luck – or something else?”
The story detailed how stock option grants often happen to be dated to just before a rise in the stock price, often when the stock is at a low point. Convenient, isn’t it? A stock option gives an executive the option to buy a stock at a given price. So if he gets that option on a day when the price of the stock is $10, that’s how much he will pay for a share, no matter what the price is on the day he purchases it. So if the stock goes up to $30, he can buy it for $10 and sell it for $30. If he was given, for instance, 100,000 options, he would buy the stock for $1 million and sell it for $3 million.
The original idea, supposedly, was to reward an executive for good performance. I say “supposedly.” I should not say that. Most people credit the late Elliot Stein with the idea of this “performance-based” perk. He died five years ago at the age of 82. He was, I think, the wisest man in St. Louis and one of the most decent. He was old–school. In the days before corporate boards became corrupted, he was considered a professional director. In 1967, this newspaper reported he was serving on eighteen different boards.
He thought it made sense to tie a portion of executive compensation to the performance of the company.
But no idea is perfect, even if it comes from a wise and decent man. For one thing, a booming market means even an underperforming company’s stock will rise, and a mediocre performance will be rewarded. And once the executives took over the boards and Executive A served on Executive B’s board and B on A’s and so forth, options were given in astronomical amounts.
According to Saturday’s Wall Street Journal, it now may have gone from ludicrous to criminal. The story says it is illegal to back-date the stock option grants. In other words, a company can’t look back at a dip in the price, or a day before a rise, and make that the date of the grant. The story looked at a number of companies where these grants were issued at the best possible time for the execs and tried to compute the odds of these grants being issued “by chance” on those dates. For one company, the odds were “about 1 in 300 billion.” For another, “about 1 in 26 billion.” And so on.
By the way, since we’re talking about executive compensation, we’re talking about big numbers. William McGuire, the chairman and CEO of UnitedHealth Group, was given 14.6 million options. The Journal story valued that grant at about $756 million. His grants fell on particularly good days. Odds of it happening by chance? One in 200 million.
For the sake of our executives, we really have to do something.
SRH Email of 3/21/06 to Bill McClellan of the St. Louis Post-Dispatch
Forelle and Bandler nailed the execs and their companies directly to the wall – with no hope of squirming out of this fraud. The graphs and the reported probabilities at the end of Journal article made it abundantly clear that this had to be a violation of SEC and accounting regulations. If Martha Stewart served prison time for her actions, think how long these individuals might be behind bars. And yes, I too hope that someone takes a hard look at our local companies to see if they have played games – or have followed all the regulations, and are pure.
SRH Email of 3/23/06 to Bill McClellan of the St. Louis Post-Dispatch
Bill, as you know, I was with Monsanto for thirty-four years and retired in early 1993. During that period, I was privileged to work with great people of the highest caliber and integrity. I and many of my colleagues received bonuses and stock options, but the system was based upon true performance – and never rigged or abused.
However, I see things have changed, and not for the better. I and my wife have just finished rereading several of your columns again for the umpteenth time, specifically:
· "Bankruptcy reform should be extended to corporations - 5/06/05,"
· "Give executives a break – stop foisting all that money on them - 3/17/06," and
· "Journal story builds case for crackdown on stock options - 3/20/06," plus the
· WSJ investigative report on "The Perfect Payday - 3/18/06."
Never have we seen such greed, such flagrant corruption and such total disregard for SEC and Accounting regulations. Not only is the system corrupt, there is absolutely no sense of right and wrong or of human decency in many of the people running some of our corporations today. Couple these reports with all of the fraud that's been perpetrated in the past several years by Enron, WorldCom, Tyco, et al, and we have a "Mob" mentality running many of our U.S. businesses. Not all CEOs and top execs are of that mindset – but it's obvious that many are.
I think it's time for a change, a Big Change! We need a "Can do" person in place as Attorney General of the United States or as head of the SEC – someone who will bring this nonsense to a halt and impose extremely severe penalties on such people. I nominate Eliot Spitzer, Attorney General of New York. Then, things will change – and change they must!