The sky’s no limit for CEO perks
Fortune 100 companies (shareholders, that is) are spending more
and more on private jets for top executives -- who can use them
for personal tasks, like dropping off kids at school.
By Michael Brush
Saturday, April 18, 2009
Delayed flights. Lost bags. The shoe dance at the
There's an easy way to avoid all of these commercial-airline
indignities: Befriend, or become, a corporate big shot.
The skies get a lot friendlier when you're a CEO.
As commercial flying has become more painful, corporate jets
have become a catch-all perk for top executives. CEOs have
had access to the company plane for some time now, but these
days the jets are being used more than ever to ferry friends and
family on mundane trips. All, of course, at the expense of
Exhibit A: Edward Mueller, who was appointed the CEO of
the telecom company Qwest Communications in mid-August.
Qwest is based in Denver, and
Mueller moved from the
area to take the job. His stepdaughter wanted to finish
high school in California, but that's a long way from Denver. So by late August an amended
employment agreement emerged that allows Mueller's stepdaughter
and his wife to commute between California
and Denver on the company jet
through the end of June 2008.
Most corporate-plane usage agreements require the CEO to be on
the flight with family members, but Mueller's family can fly
whether he's on the plane or not. "Most of us didn't even
have a car to get to school, and she has to get a corporate
jet?" says footnoted.org's Michelle Leder.
Given what Mueller makes, you might think he'd be able to
afford the cost of the flights on his own. Mueller gets a
salary of $1.2 million and a "target bonus" of $2.4 million,
plus restricted stock worth $7.5 million and a $5,000-a-month
housing allowance, among other perks.
Daniel Pedrotty, a corporate-governance expert at the AFL-CIO
Office of Investment, wonders why CEOs who are so well paid
can't shoulder the cost of private air travel for family
members. "That's why we pay them these handsome salaries,"
he says. "But these CEOs are taking shareholders for every
penny they can get. It's almost like there is no shame
Pedrotty thinks the money that companies like Qwest spend on
private air travel for CEOs and their families should be
returned to shareholders as dividends or reinvested in the
company for long-term growth.
"Instead, they are squandering it for something that does
nothing to help the performance of the company," he says.
Qwest spokeswoman Diane Reberger says the company's employment
agreement with Mueller is fair and reasonable. "We would
not characterize this usage as commuting," she says. "The
purpose is to allow her to use the corporate aircraft, as
needed, for occasional visits to Denver during the school
Friends and family
Qwest isn't alone in allowing family members free use of the
corporate jet for personal travel when an executive isn't along
for the ride.
A 10-year employment contract made public in late September
allows Tyson Foods board chairman John Tyson -- whose company is
the world's largest processor of chicken, beef and pork -- to
put on a flight any "additional passengers" he wants, as long as
there is room. That includes friends. The employment
agreement makes clear that Tyson "need not be one of the
passengers." He's allowed to book 120 hours of this kind
of personal use of the company aircraft per year.
Once again, it's not like Tyson doesn't have the funds to
splurge on plane tickets for friends and family. Last
year, he made $1.1 million and had options worth at least $12
million, by the company's estimates. He made more than $5
million in salary, bonus and other compensation in 2005.
Tyson, by the way, also gets a car, secretarial support, a home
phone and Internet connection, and country-club dues under his
'Unending sense of entitlement'
"There's just this unending sense of entitlement that executives
can use shareholder resources for their personal perks," says
Chuck Collins, a senior scholar at the Institute for Policy
Studies who co-authored a recently released book called "The
Moral Measure of the Economy."
A Tyson spokesman says Tyson's compensation package was reviewed
and approved by the board's compensation committee, which is
made up of independent directors who are not a part of
management or the Tyson family.
Last month, the tech company Computer Sciences also filed
an employment agreement with its chief executive, Michael Laphen,
saying the company is giving his family access to the corporate
jet. At least he has to be on board when they fly.
Laphen's base salary is $1 million, and his target bonus for
this year is $2 million.
"These are among the most well-paid people in the country, but
they are scooping up more and more," says Collins.
In “Up, Up and Away, ” a study released last month, Paul Hodgson
of the Corporate Library found 28 cases in 2006 where chief
executives were allowed to bring their spouses along for
personal trips on corporate aircraft. In six cases, the
privilege also is extended to family members or personal guests.
Hodgson, one of the foremost corporate-governance experts in the
country, doesn't have a problem with personal use of the
corporate jet for private travel within reason -- as a
convenience or because it may improve security. But he
thinks executives should reimburse the company for it.
Instead, the trend is going the other way. Last year, the
latest year for which numbers are available, 73 of the Fortune
100 companies reported that their CEOs used the corporate jet
for personal travel, up from 65 in 2005 and 57 in 2004,
according to Equilar, an executive-compensation research firm in Redwood Shores,
CEOs are using the jets for private travel more often, too.
Last year the median estimated cost of the corporate jet perk at
Fortune 100 companies was $121,676, up 12% from the $108,579
median reported in 2005, says Equilar. Hodgson's analysis
of 215 companies where CEOs got the most perks last year put the
median cost of the jet perk even higher, at $182,929. That
is more than three times the annual median family household
The long commute
One reason the costs are going up might be that CEOs are
extending the personal use of the company jet into new
territory. Consider Michael McGrath, chief executive of
the supply-chain software company i2 Technologies.
He didn't want to give up his residence in Maine when he took the job at i2 Technologies in Dallas in 2005. So
through at least last year, he made the commute -- on a private
jet. This set the company back $942,565 in 2006. But
the cost tops $1 million if you include the $69,234 that i2
Technologies shareholders paid to pick up McGrath's tax bill on
McGrath, now CEO emeritus, gets this rich travel perk even
though he made $1.18 million in salary and bonus last year, and
has options worth $4.5 million by company estimates.
"It's the use of the company jet for long-distance commuting
that seems the most ridiculous," Hodgson says. "These are
personal lifestyle choices. I am not convinced this
provides such an enormous benefit to shareholders that they
would want to pay for it."
And the bills may keep coming: Corporate bigwigs are extending
their use of the company jet deep into retirement.
ChoicePoint CEO Derek Smith is guaranteed use of the company
aircraft for private travel for 10 years in retirement, if he
stops working at the company when his current employment
agreement expires in 2010.
"It's hard to understand how these continued perks after an
executive leaves the company adds to shareholder value," says
Leder, of footnoted.org.
A ChoicePoint spokesman says it would require Smith to reimburse
the company for private use of the corporate jet in retirement,
using Internal Revenue Service guidelines. But even with
that reimbursement, the company estimates the cost of Smith's
use of the jet for 10 years in retirement to be $3.3 million.
Here's another factor that ups the cost to shareholders when
CEOs use the corporate jet for private travel. While you
have to pay all those additional taxes on your plane tickets,
many CEOs get their companies to cover the income taxes they'd
otherwise have to pay on the jet perk. The highest tax
reimbursement last year went to eBay CEO Meg Whitman,
Hodgson's "Up, Up, and Away" study says. She used a
company jet for $773,467 worth of personal travel. To
offset the tax bill on that perk, the company gave her $230,992.
Shareholders picked up the tab for all of this, even though they
paid her $15.7 million in total compensation last year,
according to Reuters.
An eBay spokesman says Whitman's jet perk is "entirely
appropriate" for security reasons and "given her total
compensation and the performance of the company during her
tenure as CEO." Her total pay is slightly above average
for CEOs at large companies, and eBay stock has advanced almost
2,000% since the company's 1998 initial public offering.
At the time of publication, Michael Brush did not own or
control shares of companies mentioned in this column.