Stricter rules mean fewer CEO perks.
Recently filed 2006 proxy statements reveal companies cutting back on executive benefits.
Published on July 6, 2007 in the Philadelphia Business Journal.
Many area CEOs are still playing company-paid rounds of golf at posh country clubs and being chauffeured in corporate limousines.
But the benefits of being the top dog at public companies are decreasing at many firms in part because of stricter compensation disclosure rules that were recently implemented to create more transparent corporate governance.
The days of free family travel on the corporate jet are probably over. And any perks that could be deemed as personal - domestic servants, financial counseling and housing allowances, for example - are likely to fall by the wayside.
Under the new rules enacted last year by the US Securities and Exchange Commission, publicly-traded companies are now required to provide detailed summaries of executive compensation packages including bonuses, stock awards, pension benefits, and any perquisites if their total values more than $10,000.
The new regulations entered on the heels of the Sarbanes-Oxley Act, and experts consider them the most significant change in executive compensation disclosure since the early 1990's.
"I think people have become more sensitive to all these issues since the Enron and WorldCom scandals," said Eliezer Fich, an assistant professor of finance at the LeBow College of Business at Drexel University. "On TV, you saw lavish parties thrown by these CEOs who flew their entire families and a lot of other people, and they had these great parties with ice sculptures, etc, etc. Shareholders were footing the bill."
The full impact of the rules is still unknown, Fich said, as this is the first season in which proxy filings adhered to the new standards.
Some companies, however, changed their practices in advance of the disclosure changes.
In their most recent proxy statement, Philadelphia-based Sunoco, Inc. stated, "The year 2006 was a transition year for perquisites. Many perquisites were voluntarily eliminated following reviews in 2005 and 2006."
Tax gross-ups for use of the corporate airplane for company chief executive officer John Drosdick and his family have been eliminated, as was reimbursement for his private country club fees. Drosdick, who received nearly $23 million in total compensation for 2006, also turned in his company-leased vehicle and now pays for his own parking spot.
Company-paid personal financial counseling was removed from executive benefits packages starting on January 1, 2007. Where Sunoco previously paid for home security systems for their CEO and other top executives, Drosdick elected to pay the company up-front for the full value of his home monitoring system. Other executives now pay the taxes on the imputed income for their service.
"With more transparency around perquisite delivery, companies have been evaluating their perquisite policies," said Bruce Greenblatt, a principal with Mercer Human Resources Consulting. "Many have made a decision to get out of the perquisite business."
Greenblatt noted that perquisite compensation only amounts to an average of 4 percent of total executive compensation, with 84 percent of their pay coming from performance-based incentives.
At Comcast, top executives are now being required to pay for any benefits that were previously considered perquisites.
"Prior to 2006, we provided a limited amount of additional compensation through certain personal benefits to ease the professional demands of executive-level life (including travel), and to provide security to the named executive officers and their families," the Comcast proxy statement reads.
CEO Brian Roberts received more than $26 million in total compensation, including his base salary of $2.5 million, bonus of $3 million, option awards of $5.6 million and $8.4 million in non-equity incentive plan compensation.
While he had to pick up the tab for some former benefits, the company continued to pay Roberts' life insurance premiums - a $419,973 payment.
Other top area executives continued to receive copious amounts of perks including the cost of insurance premiums, tickets to sporting events, company cars, cell phones, use of corporate aircrafts and club memberships.
"It came to be normal for me to see additional money paid to cover the cost of increased life insurance and other types of insurance," said Dan Ebbert of Strategic Research Solutions, the firm the Business Journal used to compile this year's CEO information. "It's common to see a company car. It's routine to see some social club membership, although not as common as it probably used to be."
Tasty Baking Company CEO Charles Pizzi listed two company-paid country club memberships among his $295,191 worth of perquisite compensation.
Hill International CEO Irwin Richter received $17,595 for "household staff."
Michael G. Rubin, chairman, president and CEO of King of Prussia's GSI Commerce, received a $33,573 reimbursement from the company for the cost of having an attorney negotiate his employment agreement with the company.
Christopher Beiderman, the vice president and chief financial officer of the Central European Distribution Company of Bala Cynwyd, had his Polish taxes paid by the company.
"It's critical that companies have the ability to offer these programs to attract and retain these key people in a very competitive market," said Irv Becker, national practice leader for the Hay Group's executive compensation practice. "You don't want to put yourself at a disadvantage but at the same time, the comp committees have a fiduciary responsibility to the shareholder. They need to ensure that the perks are reasonable."
Rather than providing compensation for separate perks that would be required to be listed individually in SEC filings, some companies are now providing what Becker calls "unaccountable perquisite allowance."
"They calculated the value of the perquisites that executives were being offered and they provide that to the executives in a lump sum to be used as they pleased," he said.
Fich of Drexel predicts companies will be resourceful in finding ways to continue offering fringe benefits. For instance, he said that rather than attributing use of the corporate plane to the CEO, the perk will be registered to a junior executive with whom the CEO accompanies. Then it wouldn't have to be disclosed as a perk to the top executive.
"I'm sure those guys are definitely more creative than I am in figuring out how to pamper their CEOs," Fich said with a laugh.
Another major impact brought on by the new rules will be on change-in-control agreements, which now must be tabulated in filings. With the disclosure of potential payoff amounts - which are often extreme - will come greater scrutiny, experts agree.
"You want to be perceived as a company that is doing the right thing," said Rick Brown of RD Brown and Company, "and not as a company where the executives are running amok."