leaders' perks as criticism rises
By James Paton, Rocky Mountain News
Saturday, May 7, 2005
A spotlight on the perks provided to top executives isn't forcing corporations in Colorado to cut back on dishing out the extra goodies.
On top of the handsome salaries, bonuses and stock option grants showered on the top brass last year came personal trips on corporate jets, memberships to exclusive clubs, financial advice, personal assistants and housing allowances.
That's in addition to extra cash spent on health care and retirement benefits.
Perks are not a new way to reward the boss, but they are appearing more often in the footnotes of corporate proxies, compensation experts said.
Corporations are increasingly generous because they want to hold on to their executives, and they conclude that smart leaders are "not in infinite supply," said Peter Miterko, head of the executive compensation consulting practice at Denver Management Advisors.
They also are coughing up more details about the benefits amid mounting criticism from shareholders and compensation pundits, he said.
"Companies are coming to the realization: Why not disclose everything? Because if you don't, the backlash can be a whole lot bigger," Miterko said.
In one example, Pierre Lassonde, president of gold-producing giant Newmont Mining, received $76,693 for a country club membership last year, according to the proxy filed with regulators.
Newmont did not disclose the name of the club.
Taking into his account a windfall of $15.3 million from cashing in stock options last year, Lassonde was the third highest-paid executive in the state.
A significant part of his membership is for business purposes - entertaining and meetings with colleagues - but "we take the conservative view and attribute all the membership fee to his income," Doug Hock, a Newmont spokesman, said in an e-mail.
At the same time, Qwest Communications lavished Chairman and Chief Executive Dick Notebaert with more than a half-million dollars in perks, the Denver-based telecommunications company's proxy showed, though that's actually less than the amount he received in the previous year.
Personal use of the corporate jet came to $189,296, financial consulting services totaled $74,336, and a personal assistant and related office expenses hit $46,841. Another $75,000 was for "flexible benefits" or the perk of his choice, the document showed.
Notebaert, who took home a salary and bonus last year of $4.1 million, also received about $180,000 in "gross up" payments to reimburse him for taxes he paid on some perks.
Qwest spokesman Bob Toevs would not elaborate on the extra benefits, saying only they were "part of his employment agreement."
Airplane trips, cars, clubs and tickets to the ballgame are all costs typical employees pick up on their own.
"And shareholders have a legitimate complaint when they question why executives can't pay the bills themselves," said Paul Lapides, director of the corporate governance center at Kennesaw State University.
"An $80,000 perk may seem like chump change," he said, "but the reality is, most employees don't think it is."
Perks poured into the corporate suite have risen along with total pay. Critics say a desire to keep pace with competitors forces compensation higher, even if performance hasn't improved.
It's "the Lake Wobegon effect, where everyone is above average," said Alan Beller, director of the Securities and Exchange Commission's corporation finance division, according to a transcript of a speech he made in October.
"Too many boards have apparently operated on the principle that compensation must be in the top half or even the top quartile of some benchmark group for the company to be competitive in attracting executive talent," he said. "Boards of directors ought to be able to do better than this."
Lifting the lid on executive perks
At First Data Corp., top officers may have received country club fees, event tickets and reimbursement for financial planning; however, they were not divulged because they were less than $50,000 for each executive.
It's OK for companies to withhold disclosures of anything that falls below that dollar mark.
Chief Executive and Chairman Charlie Fote earned a salary of $1 million or more in each of the past three years but didn't use any of that to pay for his club membership or annual fees.
In 2002, the Greenwood Village-based credit-card payments processor paid nearly $80,000 for him to join the club.
Another Colorado company, Cenveo Inc., has adopted a plan in which the following can be covered: medical expenses, supplemental life insurance, financial counseling and airline, health and golf club dues. The chairman and CEO will get a maximum of $13,000 in benefits each year.
Country club dues and similar sundries are usually legitimate expenses, Miterko said, though he acknowledged that they tend to "rile up investors."
Plenty of other expenses surfaced in the catch-all category called "other compensation."
Liberty Media International, the operator of cable-television assets, gave David Koff, a senior vice president, about $742,000 to take care of housing and other costs he had as "an expatriate working in London," the proxy said.
At UnitedGlobalCom Inc., one of the top officials, Gene Musselman, benefited from a $617,294 payment made by the company to Dutch "tax authorities as a result of his foreign assignment," the proxy said. The company picks up the extra costs for the higher taxes he faces in Amsterdam, Netherlands, where he is based.
An uproar over the perks handed out to former General Electric CEO Jack Welch triggered calls for more disclosure.
Corporate jets for personal use have become the most common benefit. Charlie Ergen, chairman and chief executive of EchoStar, and Steve Scheid, the new chief of Janus Capital Group, are among the many corporate captains who took advantage of that.
A lot of the expenses have crossed the $50,000 threshold lately, Miterko said, as there is more pressure to accurately value them.
"We're seeing a lot more honest counting going on," he said.
How much Qwest paid for CEO Dick Notebaert to use the corporate jet in 2004.
patonj@RockyMountainNews.com or 303-892-2544