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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
MoneyCentral.msn.com
Saturday, April 18, 2009

Delayed flights.  Lost bags.  The shoe dance at the security gate.

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 shareholders.

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 San Francisco 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.

Squeezing shareholders

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 anymore."

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 year."

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 new contract.

'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, Calif.

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 income.

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 the perk.

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.

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