Despite Huge Salaries, CEOs Cling To Their Perks

For many CEOs, it’s not just the pay, it’s the perks.

Paying big bucks for personal use of the corporate jet, country club memberships, financial planning, legal advice, cars, meals, health club memberships, personal trainers and other goodies might appear unseemly following a recession, massive corporate layoffs and cost-cutting measures affecting most average workers’ wages and benefits. But those goodies are among a wide array of perquisites bestowed upon scores of CEOs and senior managers, according to a USA TODAY analysis of 2011 corporate proxies.

“We all kind of scratch our heads when executives are making millions, and (corporate) directors feel obligated to give them $10,000 for financial planning,” says Andrew Goldstein of corporate compensation adviser Towers Watson. “It’s not like directors haven’t thought about getting rid of perks. They’re still a sticking point for a lot of executives. They feel it’s part of their compensation package. And it’s a stature thing.”

The still shaky economy and shareholder unrest have begun to temper the value and scope of executive perks. Last year, some companies eliminated specific entitlements, such as tax gross-ups — essentially, payments to cover taxes on the perks’ value. A handful of companies began capping the amount of personal use of the corporate jet, while others started swapping specific perks for extra cash.

But even as post-recession executive pay rebounded sharply last year, and Wall Street’s gains enriched CEOs’ stock and options holdings, USA TODAY’s analysis found most companies believe perks remain an important component of executive compensation, no matter how small.

A look at what some companies provided:

•Oracle spent $4,642 on legal advice for CEO Larry Ellison to help him figure disclosure requirements tied to his personal political contributions. The software maker also spent nearly $1.5 million for Ellison’s home security services. Ellison has collected more than $1.8 billion in Oracle compensation in the past decade and has a net worth that ranks sixth on Forbes’ list of the world’s wealthiest.

•Hormel Foods CEO Jeff Ettinger received $8.9 million in compensation last year. Most CEOs get nothing for attending corporate board meetings. But Ettinger gets $100 for each one — a Hormel perk since 1934.

•Black & Decker CEO Nolan Archibald received compensation worth $25.8 million in 2010. As chairman of the newly merged Stanley Black & Decker, he’ll get $43.3 million in 2011 and a bonus of up to $45 million in 2013. His 2010 perks were valued at more than $600,000, including $526,391 for personal travel on the company jet, $39,676 for financial planning, $25,722 for cars, $4,528 for sports and entertainment tickets, $1,820 for club dues, and Black & Decker products valued at $2,685.

•Martha Stewart Living Omnimedia paid Stewart $55,725 for a weekend driver and $29,538 for a personal fitness trainer. That’s in addition to $2.5 million in licensing fees and expenses, and 2010 compensation valued at $2.7 million. (Stewart’s company stock is valued at $96 million.)

•Wynn Resorts CEO Steve Wynn , who was paid $13 million, received perks valued at more than $1.5 million, among them, $942,631 for personal use of the jet, $419,860 for a company-provided villa, $25,907 for a personal driver, and merchandise discounts worth $27,505.

•Macy’s CEO Terry Lundgren , who received 40% discounts on store merchandise valued at $53,543, got more than $33,000 to cover the taxes on those discounts and the imputed income covering travel costs for his wife. Lundgren’s 2010 compensation was valued at $14.9 million.

•Occidental Petroleum’s Ray Irani received nearly $391,107 worth of financial planning advice — on top of compensation worth $76.1 million.

•Carolina Power & Light picked up $1,500 in lunch club dues for CEO William Johnson , along with $5,700 in other perks, including spousal meal and travel costs, Internet access and his home phone. Johnson’s 2010 compensation and gains from stock options: $9.2 million.

•Reynolds American paid CEO Susan Ivey $79,000 in supplemental pay in lieu of a former executive perks plan. Ivey, who retired in February, received compensation valued at more than $16.8 million and gained $2 million exercising stock options.

“Some of this is hard to believe,” says Bruce Ellig , a board adviser and author of The Complete Guide to Executive Compensation. “Perks are pay for position, not for performance. They don’t have any place in compensation packages.”

Many companies say otherwise — providing perks even to those no longer on the payroll.

Cardinal Health, which gave outgoing CEO Kerry Clark $7.5 million in 2009 severance, will pay nearly $19,000 annually for his medical benefits through 2012, plus almost $12,000 more to cover taxes on those benefits. KeyCorp CEO Henry Meyer , who retires May 1, will receive country club and lunch club dues, secretarial support and office space through 2016 if he’s “requested” to attend annual shareholders meetings.

“You look at some of this stuff, and you shake your head,” says Michelle Leder , whose Footnoted blog tracks perks often buried in the fine print and back pages of corporate filings. “But it doesn’t seem that anyone feels any shame.”

Still, companies appear to have ample rationale for keeping insiders happy. Among the reasons perks are handed out:

•Staying safe. Personal use of the corporate jet has skyrocketed in the decade-long wake of post-9/11 security concerns. Scores of companies, ranging from Coca-Cola to American Express now require their CEOs to use the corporate jet for all personal travel. USA TODAY found only three companies — Discovery Communications, Columbia Sportswear and Yum Brands — citing specific threats.

Columbia reported undisclosed security costs for Chairwoman Gert Boyle , 87, after a November burglary and attempted kidnapping at her Oregon home.

Discovery spent $40,299 for personal security services for CEO David Zaslav following a September hostage situation at the cable channel operator’s corporate office.

Yum Brands said it spent nearly $250,000 last year for CEO David Novak’s personal jet use, noting in its proxy that he had been assaulted while traveling and that his family had received letters and calls from “various special interests, establishing both an invasion of privacy and implicit or explicit threats.”

Compensation consultant Alan Johnson of Johnson Associates says rationalizing jet use isn’t difficult, particularly if outside security consultants weigh in. “Security is a legitimate argument if you’re a highly visible CEO,” he says. “But a bunch of companies use security as a convenient cover for personal use of the plane. You wouldn’t know their CEO if he walked down Main Street.”

Some companies are beginning to curb the corporate jet. American Express CEO Ken Chenault , who racked up over $400,000 in private travel in both 2008 and 2009, is now limited to $200,000 annually. (Chenault, who received 2010 compensation valued at more than $15 million and exercised options for $8.5 million, still gets a $35,000 annual perk allowance and nearly $140,000 for local car service.)

But since the IRS allows companies to value jet use at rates comparable with first-class commercial fares — a fraction of their actual cost — it’s a perk that’s not likely to be grounded.

•Reducing distractions. Many companies rationalize estate planning, legal assistance and other service payments to executives by saying they allow them to concentrate on work.

Campbell Soup provides $48,000 annually to CEO Douglas Conant under a “personal choice program” that covers estate planning and tax services. Other executives get $32,000. Why? “So that executives are not distracted from devoting their time and energy to their responsibilities,” Campbell says. The company also picked up more than $60,000 for car and driver costs for Conant, who received $13.1 million in 2010 compensation and stock option gains.

U.S. Steel says designated parking spaces help keep CEO John Surma and other executives focused.

•Remaining competitive.AT&T says its perks have to be “robust and competitive enough to attract and retain key talent,” according to its 2011 proxy.

CEO Randall Stephenson , 50, doesn’t appear to be going anywhere; he’s been with the company since 1983. Yet, on top of compensation valued at $20.2 million, he received $417,000 worth of perks, including personal use of the company jet ($179,821); life insurance ($164,189); home security ($30,504); cars ($28,991); and financial planning worth $14,000.

Other firms hand out perks simply because they’re handed out at other firms. Tyco International CEO Ed Breen gets an annual $70,000 allowance, a perk “within an appropriate range of competitive practices of similar companies,” Tyco says. Breen also got more than $841,000 in tax gross-ups for reimbursed taxes and insurance benefits. That’s on top of $16 million in compensation and $3.6 million exercising stock options.

•Ensuring good health.Adobe Systems provides $1,900 for physicals. “We believe that the good health of our executives is important to our business,” the company says in its proxy.

ITT provides up to $2,000 for gym equipment or personal trainers, up to $2,000 for annual physicals and up to $6,000 for supplemental medical expenses.

Johnson says for the sake of appearance, it’s best to get rid of most perks and just roll the costs into salaries and bonuses. He limits his perk recommendations to physicals and health club memberships. “If it makes the guy healthier, there’s a return on the investment,” Johnson says.

A handful of companies provide no perks. Benefits provider United Healthcare Group says they aren’t necessary to attract and retain executive talent or consistent with the company’s pay-for-performance philosophy. Executive physicals, company cars, access to private jets, paid financial planning services and club memberships are against company policy.

Cutting back?

A 2010 survey of 251 companies by compensation consultant Towers Watson found more than 33% had eliminated perks. But most cutbacks were tied to perk-related tax payments or to severance packages.

Banking giant Comerica eliminated all perks, such as car allowances. Monsanto stopped paying for CEO Hugh Grant’s country club dues. Medical equipment maker Stryker stopped picking up the tab of CEO Stephen MacMillan’s club dues, physicals and plane use.

Water heater manufacturer A.O. Smith eliminated country club payments, car allowances, financial counseling and gross-up pay to cover perks, but now provides allowances of up to $60,000.

Ohio-based power company DPL is no longer paying newly hired executives $20,000 annual cash allowances. But the perk remains for executives hired before 2011, proving how hard it is to wean executives off company-provided extras.

DPL grandfathered the cash allowance because it “was an expected element of their compensation,” DPL says in its proxy.

Compensation consultants say such sentiment makes it doubtful most perks will fade away.

“Forget about the corporate boards put in the position where they impose takeaways,” Goldstein says. “Why aren’t there more cases of management saying, ‘The right thing to do is to give these up’? Given what’s happened in terms of corporate layoffs and salary cuts, why aren’t we seeing CEOs giving perks up voluntarily?”