Companies Take Big Hits on Relocation As Executives' Homes
Languish on Market
Qwest Loses $1.8 Million on CEO's House; Angry
Shareholders Are Seeking Recourse
By Joann S. Lublin
Wednesday, May 14, 2008
Disgruntled investors at Qwest Communications International Inc.
vow to air a litany of complaints at the annual meeting next
week. Among them: the $1.8 million that Qwest lost
on the former Tiburon, Calif.,
home of Chief Executive Edward Mueller.
To recruit Mr. Mueller last summer, the
Denver
telecom company agreed to purchase his home if he couldn't find
a buyer. Qwest bought the 7,068-square-foot house for $8.9
million in September, but reaped only $7.1 million after closing
costs and commissions when it sold in December, the latest proxy
statement says.
The perquisite is "a dramatic example of corporate welfare for
the top brass," says William Patterson, executive director of
CtW Investment Group, the investment arm of labor federation
Change to Win. A CtW official plans to ask Qwest's board
at the shareholder meeting to recover most of the money lost.
Other shareholders are in for similarly rude shocks this spring,
as companies disclose sizable bills to cover real-estate losses
of transferred senior officers. At least eight companies
say they've spent $500,000 or more to help an executive sell a
former residence. Qwest is the biggest spender so far.
Others include Boston Scientific Corp., Kellogg Co. and State
Auto Financial Corp.
Employers have long paid relocation expenses for top executives.
But the prolonged housing slump is pushing costs higher, while
tougher disclosure rules force companies to divulge more
details. About 68% of 203 surveyed companies reimburse
some or all of a staff member's loss on a home sale, concludes a
March survey by Weichert Relocation Resources Inc., Morris
Plains, N.J. Not surprisingly,
top managers are most likely to receive the perk.
Qwest promises to buy the residence of any transferred employee
at the vice-president level and above if the home remains unsold
for 60 days. In a May 9 letter to Qwest, Mr. Patterson,
the pension-group official, said the company bought Mr.
Mueller's home for about $1.2 million above its market value.
The CEO kept that windfall despite "a flawed valuation process,"
Mr. Patterson added in his letter to James A. Unruh, chairman of
the Qwest board's compensation committee. Pension funds
sponsored by CtW unions own about 9.2 million Qwest shares.
Certain Qwest retirees also intend to criticize the home
purchase at the annual meeting. The significant loss from
the sale of Mr. Mueller's house "is another example of poor
decision making by the company," says Nelson Phelps, executive
director of a retiree association and a former human-resources
manager. "Many retirees are angry over this move," he
says.
Nicholas Sweers, a Qwest vice president, says the company based
the purchase price on two independent appraisals, which valued
the home at between $8.8 million and $9 million. Amid a
soft housing market, "it was in our best interests to sell the
home quickly," he says. Mr. Sweers declines to comment on
the shareholder concerns and says Mr. Mueller declines to
comment.
Some companies are still paying for executives who have moved on
after moving. Dessa M. Bokides quit as chief financial
officer of ProLogis in March 2007. But ProLogis, a
Denver
industrial real-estate manager, still owns her former Darien, Conn.,
home, which it bought for $5 million in September 2006.
The latest proxy says the house has cost ProLogis about $590,000
so far, including upkeep and expected sales commissions.
The tab could rise: The home is listed for sale at $4.5
million.
ProLogis lost money on the former
Florida
residence of CEO Jeffrey H. Schwartz, which it bought for $3.125
million in March 2007 and sold in November for $2.52 million.
The executive perk helps "to attract top-tier talent," says
Melissa Marsden, senior vice president of investor relations.
Cadence Design Systems Inc. confirms it has paid $1.16 million
in housing allowances and related tax payments to CEO Michael
Fister since it recruited him from Intel Corp. in 2004.
The apparent reason: Mr. Fister has been unable to sell
his two adjacent homes in
Lake Oswego, Ore. A three-level lakefront home,
featuring a wine cellar, billiard room and three-car garage, is
listed for $7.5 million. A larger, 7,500-square-foot
"guest house" next door is listed for $6.3 million.
Adolph Hunter, a vice president for the
San Jose, Calif.,
electronics-design software specialist, declines to discuss the
housing allowance, beyond Cadence's regulatory filings.
Write to Joann S. Lublin at
joann.lublin@wsj.com
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