Despite a vicious economic slump that continues to fuel public outrage over executive pay, Corporate America hasn’t curbed its urge to splurge a whole lot.
A Compliance Week study of CEO perks offered at 250 large companies—largely the same sample group we studied in 2007—shows that the median spending on “all other compensation” rose 7.5 percent in the last two years. But various specific perks, such as access to corporate aircraft, are being awarded less frequently, even as the overall monetary value of the perks has grown.
Average spending on perks for the group actually fell 6.1 percent, from $367,540 to $344,940. But those numbers are skewed by several companies changing their spending by large amounts and by a handful of now-defunct companies not on this year’s list. The median numbers are a better statistical measure of what companies are doing.
The perks themselves ranged from use of corporate aircraft and cars, to country-paid club memberships, to home security systems or supplemental retirement benefits. In broad terms, fewer corporations are giving out those plums:
68.8 percent of companies offer personal use of corporate aircraft (still the most common CEO perk out there), compared to 76.4 percent in 2007;
Supplemental executive retirement plans (SERPs) fell from 70.4 percent to 69.2 percent;
Tax-preparation services fell from 68 percent to 57.2 percent; and
Home security systems fell from 37.2 percent to 30.4 percent.
Compensation experts attribute the overall decline in perks to expanded disclosure rules the Securities and Exchange Commission published in 2006, rather than to the financial crisis—although, they add, the crisis doesn’t help. “Given the tendency to implicate perceived executive compensation excess in the financial crises, perks will be perceived even less favorably,” says Deborah Lifshey, a managing director for compensation consulting firm Pearl Meyer & Partners.
Lifshey
Companies accepting government bailout money (largely banks in the Troubled Asset Relief Program, plus a handful of others) “have an even lower threshold for disclosure,” Lifshey adds.
In response to greater scrutiny, some TARP recipients have announced that they’re scaling back on perks. Bank of America, for instance, promised to sell three corporate jets and one helicopter it acquired from Merrill Lynch, and Wells Fargo is downsizing the aircraft fleet it inherited from Wachovia. Other TARP banks that continue to own aircraft fleets for executive travel include American International Group, Citigroup, JPMorgan Chase, and Morgan Stanley.
Aircraft usage is not the only perk companies are reducing. Wells Fargo said it plans to “phase out as soon as practicable in 2009 a financial planning benefit to executive officers.” SunTrust Banks and Bank of New York Mellon announced a similar initiative, in addition to eliminating club memberships and home security for its executives, according to the banks’ proxy statements.
“Given the tendency to implicate perceived executive compensation excess in the financial crises, perks will be perceived even less favorably.”
— Deborah Lifshey,
Managing Director,
Pearl Meyer & Partners
Other companies are not giving up any benefits at all. Lockheed Martin, Disney Corp., and AT&T are a few that continue to give their executives all the usual perks.
A few, such as Microsoft Corp., say they offer their executives perks only in “special situations.” For the most part, executives are given the same benefits as other employees, “including our 401(k) plan, employee stock purchase plan, health care plan, life insurance plans, and other welfare benefit programs,” Microsoft’s proxy statement says.
Tax Grossups
Tax grossups, where companies cover the taxes that executives must pay on perks, have also received considerable wrath lately, particularly from investor activists.
Ferlauto
Richard Ferlauto, director of corporate governance and pension investment at the American Federation of State, County, and Municipal Employees union, tells Compliance Week that AFSCME submitted shareholder proposals to eliminate grossups at five companies in the last year: CVS, Honeywell, Nabors, Northrop Grumman, and Textron. So far, Nabors, Northrop Grumman, and Textron have agreed to ban grossups.
In addition, a recent analysis of benefits and perks by research firm Equilar shows that in the first few months of 2009, more than 50 companies in the S&P 500 index reduced or eliminated tax grossup programs for executives.
Some executives are giving up such perks voluntarily. For example, Thomas Nides, chief administrative officer at Morgan Stanley, is forgoing any reimbursements for taxes related to income imputed to him for his travel between his home in Washington and the company’s New York headquarters. In its proxy, Morgan Stanley said that compensation for such trips totaled $73,950, in addition to a $58,595 gross-up for 2008.
For many compensation committees, grossups had been a way to keep up with peers—but, according to Ferlauto, now that so many corporations are dropping them, “the ground has moved on those compensation committees.” He expressed confidence that shareholders are “pretty near victory” and expects that within the next year or two many companies’ use of grossups will be significantly reduced.
Cash Compensation
Some companies cutting perks have made up the difference with more cash. Qwest, for example, gives CEO Edward Mueller an annual cash payment of $75,000 each year. “Although these payments are intended to replace the piecemeal payment of most perquisites, we do not require executives to use the money for any particular purpose and we do not ask executives to report to us the purposes for which the money is used,” according to the company’s proxy. In addition to the cash payment, Qwest also spent $493,781 for Mueller’s personal use of the company aircraft, and an additional $48,279 for relocation benefits in 2008.
PERKS PROGRESS REPORT
A comparison of company perks, 2007 and 2009:
Perk:
2007:
2009:
Corporate Aircraft
76.4%
68.8%
SERPs
70.4%
69.2%
Tax Prep
68%
57.2%
Home Security Systems
37.2%
30.4%
Source
Compliance Week’s 2009 Perks Spreadsheet (2009).
Stumpf
Wells Fargo, too, is taking heat for increasing the 2009 compensation of CEO John Stumpf. While his annual salary will remain flat at $900,000, he will receive another $4.7 million in stock. The company stated, however, that Stumpf (and the three other executives getting the large pay increases) can’t sell the new shares until Wells Fargo repays the government’s bailout money.
“Wells Fargo’s compensation philosophy has always been to pay competitively, to reward performance relative to its peer group, and to align management’s interests with those of our shareholders,” Steve Sanger, chair of the board’s human resources committee, said in a prepared statement. Sanger added that the company must carefully balance this need with the “responsibility” of being a TARP recipient.
Todd
While compensation experts expect the trend toward less perks to continue, some say the criticism of such benefits isn’t always proper or well informed. Some perks may seem questionable on their face, but “there is probably a story behind each and every one as to why they exist,” says Paula Todd, a principal at consulting firm Towers Perrin.
Disclosure of perks is such a sensitive topic today, she adds, “that I’ve got to believe that most companies that are continuing to provide them are doing it based on a very conscious decision that the perk accomplishes some objective,” such as for a cost benefit, security purposes, or some other goal.
Not all agree. Executives are paid well enough to pay for perks on their own, Ferlauto says. “We’d rather see company resources be used for pay that’s linked to performance.”
A downloadable spreadsheet of perks at 250 of the S&P 500 can be found in the box above, right.
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