Outrageous executive perks
A funny thing happened after the Securities and Exchange Commission tightened up the disclosure requirements on executive perks in 2006: Companies began to scale back dramatically on the personal jet flights, sports tickets and other benefits they used to slip top executives unnoticed.business Updated: May 12, 2010 20:07 IST
A funny thing happened after the Securities and Exchange Commission tightened up the disclosure requirements on executive perks in 2006: Companies began to scale back dramatically on the personal jet flights, sports tickets and other benefits they used to slip top executives unnoticed.
Las Vegas Sands Chairman Sheldon Adelson must not have gotten the memo. Last year Adelson, worth $9.3 billion by our reckoning, reported $2.7 million in perks, nearly equal to his $2.8 million in pay and bonus. The bennies included $2.45 million for security for himself and family members, $168,812 for a car and driver, and $67,000 in reimbursement for the taxes due on $118,000 in personal aircraft usage. And by "personal", we do mean personal: Adelson charged the company $6.1 million for the use of two 747 jumbo jets he owns through a Bermuda corporation.
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Adelson may deserve a pass, since he invested $1 billion in his company to get through a rough period in 2008. And outrageous perks are going out of style at other companies as executives forgo unseemly--now that they have to be disclosed, anyway--benefits in favor of straight cash and stock.
But that doesn't mean the expensive perks are all gone. Forbes joined with Footnoted.org, a Morningstar unit that scours proxy statements (the detailed annual reports on how much top executives were paid) and other SEC documents, to see what kind of goodies were buried in the most recent wave of filings. Despite tightened regulations, rising shareholder activism and an antibusiness climate brought on by the worst economic downturn in a generation, we found plenty of excesses.
Take the $183,415 MicroStrategy Chief Executive Michael J. Saylor spent last year to be driven around in company cars and "alternative car services." The logic-defying expenditure could have purchased four 2010 BMW 335 i 2D Coupes, Footnoted.org observed, for what the New York digital game publisher spent on ground transportation. He declined comment.
Another head-scratcher: the enormous sums some companies pay executives for "personal financial planning." Ray Irani, the long-serving chairman of Occidental Petroleum, got $391,000 in "tax and financial planning" last year, which would represent eight months of work by a $300-an-hour financial planner. That's some tax return. Occidental shareholders will be picking up this tab for some time. Irani gets to spend that much for the rest of his life under a contract that also guarantees him at least $5.7 million a year. An Occidental spokesman says the planning keeps Irani "singularly focused on Occidental's operations and performance," which in 2009 exceeded competitors ExxonMobil, Chevron and ConocoPhillips.
Omnicare Chairman Joel F. Gemunder also seems to have complicated finances. Omnicare covered $134,250 in tax and financial planning plus another $27,750 for "executive bookkeeping," which some shareholders might think is what they hire executives to do. The company did not respond to a request for comment.
Shareholders also might be surprised at the advice they are buying.
"Frequently these financial planners tell the executive to sell their stock," said Ira T. Kay, an executive pay consultant in New York.
Outrageous retirement benefits have been on the wane since former General Electric Chairman Jack Welch revealed a package that included free use of a Manhattan apartment, wine and flowers. But some executives seem prepared to weather any criticism in defense of their golden years. Gemunder, for example, gets special pension benefits to make up the difference between the standard company retirement plan and what an executive of his stature is entitled to. Estimated current value of the secondary plan: $87.3 million. He declined comment.
Timothy P. Horne retired as chief executive of Watts Water Technologies in North Andover, Mass. in 2002 but took home $495,564 in "consulting fees" under a contract that entitles him to 300 hours of such lucrative work a year "so long as he is physically able." Should shareholders tire of this and sell the company to someone with a different idea of the value of a retired chief's wisdom, Horne gets a lump-sum payment equivalent to $23,650 a month for life.
Many companies are cutting back on personal corporate jet use or requiring executives to pay more of their share. American Express, for example, will charge Chief Executive Kenneth Chenault for joy rides in excess of $200,000 starting this year. They're also cutting back on "gross-ups," or payments to cover taxes due on the free stuff they provide executives.
But it took Michael S. Jeffries, chief executive of Abercrombie & Fitch, to see the profit opportunity in giving up an outlandish perk. He negotiated a $4 million payment this year for agreeing to a $200,0000-a-year cap on his previously unlimited corporate jet use. "We think that the decision was in the company's best interest," a company spokesman said.
Company-paid housing is another perk on the wane, but don't tell that to Martha Stewart or Steven Wynn, two business titans making a defiant stand against the new austerity (neither responded to a request for comment). Martha Stewart Living Omnimedia pays the style queen's MS Real Estate Management Company $2 million a year under something called an Intangible Asset Agreement, wherein the company pays to "maintain, landscape and garden" her properties "in a manner consistent with past practices." Stewart also got $178,352 for security services and $49,440 for a weekend driver. And her daughter, Alexis, is on the payroll as sometime hostess for $300,000 a year.
The king of perks has got to be Wynn, however, who lives a predisclosure life of Las Vegas luxury as chairman of Wynn Resorts. Wynn, worth $1.6 billion, was paid $7 million in salary and bonus last year, plus additional compensation including $1.2 million in personal aircraft usage, $12,800 for a personal driver and $62,240 for "merchandise discounts." Wynn Resorts also provides his ex-wife, Elaine, a "villa suite" for which she pays $350,000 a year, down from $520,000 because of the declining Vegas real estate market. And the newly single Wynn himself negotiated the use of two "fairway villas" that the company figures are worth $503,831 a year, proof the real estate meltdown hasn't been a bust for everyone in America.