Drawing line between fair compensation, excess
As the nation copes with high unemployment, executive perks – from sports tickets to jet use – have come under greater scrutiny.
Michelle Leder, founder and editor of Footnoted.com, a unit of Chicago-based Morningstar that digs through company filings to find “questionable self-dealing,” spent a few minutes explaining why perks exist and why some executives are getting more than their share.
Q.Where should companies draw the line on executive perks?
A.I think there are things that are clearly business necessities and things that … could legally be defined as business necessities but are not.
So where would I draw the line? Personal use of the corporate jet. It’s one thing to say, “OK, someone’s on business time and they really need to get to California for this meeting that starts at 9 a.m., so the corporate jet’s the easiest thing.” It’s another thing to say, “The person has a weekend house on the coast of Oregon, and they really need to be there, so let’s use the corporate jet for that.” That’s really where I’d draw the line.
Tax gross-ups. … Let’s say you get $500,000 because you’ve exercised some stock options. … And the stock’s done very well. Can’t you afford to pay the taxes on that? Why are shareholders paying the taxes on that?
Any kind of benefit that lasts for life. People are living very long these days. That’s something that could end up costing a company … especially when it’s extended to family members. It’s a benefit that is not insignificant.
Q.Why do companies need these perks for executives?
A.What you generally hear is there’s a limited number of people who can fill this job, and the competition for talent is pretty intense. You either put up, or you lose the person you want. … The argument is you can’t just go and stand on (a street corner) and recruit a CEO. You need to actually think about it and plan for it and find someone who has the requisite skills, and the fact is a lot of these executives have gotten very used to the perks that come with that.
Q.How have perks changed for executives over time?
A.Quite honestly, only recently did companies start disclosing this sort of stuff.
Q.Is it good news for shareholders that the Securities and Exchange Commission now requires this kind of disclosure?
A.It certainly raises some questions. If the company’s doing well, you tend to question it a little bit less. But if the company’s not doing well and you see the CEO is spending $500,000 or more on personal use of the corporate jet, you kind of wonder: Why isn’t the person staying in place and working on fixing whatever’s wrong with the company instead of flying off to the Bahamas every weekend or every opportunity he gets?