Companies Trim Executive Perks To Avoid Glare
Jet Rides, Club Dues On Chopping Block As SEC Rules Kick In
By Erin White and Joann S. Lublin
The Wall Street Journal
Friday, January 13, 2007
Some CEOs may soon learn there's no such thing as a free
ride -- on the corporate jet, anyway.
Personal air travel on the company dime is among an array of
executive perks some companies have begun trimming as new
compensation-disclosure rules take effect.
On Jan. 1, Exxon Mobile Corp. and Lockheed Martin Corp.
stopped paying executives' country-club dues. In December,
directors of General Mills Inc. capped free personal rides
on company aircraft for its chief executive officer. And
E*Trade Financial Corp. said it no longer would help top
executives pay taxes on their severance benefits if the
company is sold.
The changes come amid sweeping new Securities and Exchange
Commission requirements for additional disclosure about
executive pay and perks. The rules, which took effect for
fiscal years ending after Dec. 14, require companies to
reveal perks for top executives that add up to $10,000 or
more apiece; the old rules required disclosure of perks
valued above $50,000.
The number of companies dropping or curbing perks is
unclear. Most won't file their annual proxy statements,
detailing executive compensation, until March or April. Of
110 large companies surveyed by Mercer Human Resource
Consulting in November, 14 said they had eliminated perks or
were considering doing so because of the new regulations.
But some compensation consultants and directors expect the
number to grow as more boards consider the hazards of
publicizing perks amid a burgeoning national outcry over
executive compensation. In recent weeks, investor anger has
been stoked by exit packages in the neighborhood of $200
million for the CEOs of Pfizer Inc. and Home Depot Inc.,
both of whom left under fire for poor shareholder returns.
The enhanced compensation-disclosure rules "will for sure
accelerate the cutbacks" in perks, says William G. Bowen, a
director at drug-maker Merck & Co. who previously sat on the
boards of American Express Co. and Reader's Digest
Association Inc. With their reputations on the line, board
members "don't want to be embarrassed" by executive-pay
practices, he says. Mr. Bowen declined to comment on
whether Merck's board is considering dropping any perks for
CEO Richard Clark, who now receives a company car, limited
personal use of corporate aircraft and financial counseling,
among other benefits.
Information about perks that Merck provided its top
executives last year will be described in the company's 2007
proxy, a spokeswoman said.
Perks coming under greater scrutiny include country-club
dues, company cars, private use of corporate jets,
financial-planning services and instances where companies
pay executives to cover those officials' tax payments due on
other compensation. Many such items typically aren't very
costly, but can attract shareholder protests.
They are also fairly common. A Mercer study of proxies last
year found that 55% of 350 large companies said they allow
personal use of company aircraft. About 50% said they paid
for financial counseling, 43% for company cars, and 27% paid
club dues, the study indicated.
Mark Reilly, a partner at Compensation Consulting
Consortium, a consulting firm in Chicago, says many of his
clients are considering trimming perks. "The discussion is,
'How will our employees and shareowners perceive these
perquisites?' " he says. "It just sort of provides
ammunition to employee groups and unions to attack your pay
The companies changing perquisite policies in recent months
may still have to disclose 2006 payments for those benefits
in their proxies. The companies may hope to damp investor
criticism by announcing curbs on perks ahead of, or at the
same time as, the disclosures.
The tactic may not quiet shareholder activists, however.
"If executives think that preemptive perk reductions will
help them escape shareholder scrutiny, they are badly
mistaken," says Cornish F. Hitchcock, outside counsel for
Amalgamated Bank's LongView Funds. The union-backed
activist funds have objected to executive-pay practices at
concerns such as Dynegy Inc., CA Inc., and Halliburton Co.
Meredith Miller, an assistant state treasurer in
Connecticut, whose public-employee pension fund has about
$26 billion of assets, says she is encouraged by the recent
moves to curb senior-management perks. "Transparency is one
of the best antiseptics for executive pay," she says.
But she predicts activist shareholders will continue to
pressure companies that eliminate highly visible perks
without tackling other controversial forms of executive
compensation. "Many of the same board members who approved
these perks in the past are still sitting on the board," she
says. "The day of accountability will still come."
In fact, executives don't necessarily lose in these new
arrangements. Compensation consultants expect many
companies to increase other forms of compensation to make up
for the lost perks.
Becton, Dickinson and Co., for example, raised CEO Edward
Ludwig's salary $4,000, to $994,000, after eliminating a
financial-planning perk in 2005, which had cost the Franklin
Lakes, N.J., medical-technology company as much as $9,000.
Lockheed Martin said in an SEC filing that it gave
executives a "one-time salary adjustment" after cutting
benefits including country-club dues and financial
counseling. On Dec. 1, CEO Robert Stevens got a $40,000
raise in his base salary, to $1.52 million. Robert Coutts,
Lockheed's executive vice president for electronic systems,
got a $25,000 raise, to $850,000. A Lockheed spokesman
declined to comment on whether the changes were prompted by
the new SEC rules, but noted that "perks have received
Some companies had been chipping away at perks even before
the SEC rules surfaced. Becton, Dickinson in October 2005
stopped reimbursing top executives for personal
financial-planning services. In December 2005, it struck an
agreement with Mr. Ludwig under which he reimburses the
company for most of the cost of his personal use of company
aircraft. Becton, Dickinson said the changes were prompted
by efforts to improve corporate governance.
More perks have been disappearing in recent months, as the
broader disclosures required by the new rules draw nearer.
Exxon Mobil directors dropped the country-club dues perk
because they decided it looked silly when executives earn
enough to foot those bills themselves, according to a person
familiar with the matter. Former CEO Lee R. Raymond was
reimbursed $67,035 for membership fees in 2005, according to
Exxon Mobil's most recent proxy. A spokesman declined to
comment on whether the change, which took effect Jan. 1, was
influenced by the new rules.
In November, Avaya Inc. halted payments to cover taxes
levied on executives for personal use of company aircraft,
according to a recent SEC filing. A spokeswoman for the
Basking Ridge, N.J., maker of telecommunications software
and equipment says the change was "part of our normal
process of examining compensation and benefits" and
unrelated to the SEC rules.
In December, General Mills began to require that Chief
Executive Stephen W. Sanger reimburse the company for
personal use of corporate aircraft beyond $50,000 per year;
Mr. Sanger's perk used to be unlimited. His personal use of
company aircraft was valued at $73,001 in the company's 2006
fiscal year, according to an SEC filing. A spokesman says
directors approved the change, proposed by Mr. Sanger. The
CEO "felt that there should be a cap," says spokesman Thomas
Forsythe. He says the change wasn't prompted by the new SEC
Other companies acknowledge that the looming disclosure
requirements played at least some role in new curbs on
executive perks. Ryder System Inc., a Miami provider of
transportation and logistics services, recently decided to
discontinue certain severance perks for executives that had
included a car allowance and financial-planning services,
according to an SEC filing on Thursday. The board decided
that those perks were primarily job related, so it didn't
make sense to continue to provide them once the executives
were no longer employed, says Flora Perez, Ryder's assistant
general counsel. The change was partly prompted by the new
disclosure rules, but more so by a desire to practice good
governance, she adds.
"We certainly had our eye on the new disclosure rules," says
John Daniel, manager of employee services at First Horizon
National Corp. The Memphis, Tenn., bank-holding company
last month stopped reimbursing executives for taxes paid on
benefits such as a car allowance, disability-insurance
premiums and personal use of corporate aircraft.
Mr. Daniel says First Horizon's board compensation committee
dropped the tax reimbursements primarily because they aren't
seen as good governance. When a company covers a senior
official's taxes, "the perception is that the executive is
getting something special," Mr. Daniel said. "All of us in
the corporate world are looking at what's the best practice
in this governance environment."
Erin White at
firstname.lastname@example.org and Joann S. Lublin at