Firms picking up CEOs' taxes
One common perk covers exec's personal time on corporate jets
By Greg Farrell
Wednesday, April 2, 2008
CEOs are just like the rest of us: They hate paying for things
out of pocket if they can find someone else to foot the bill.
Fortunately for them, in many cases there is someone willing to
pick up the bill for selected personal expenses: the
A new study from The Corporate Library finds that the most
common form of perk being granted to CEOs these days is
something called a tax "gross-up." In plain English, it means
that a company pays the taxes owed by the CEO on benefits
granted by the company.
The Corporate Library, a shareholder watchdog group, found that
20% of major American companies, or 657 of nearly 3,300
examined, picked up the tab on at least one tax owed by the CEO.
"We are sure that many
workers would be grateful if their employers also paid their
income tax obligations," writes Paul Hodgson of The Corporate
Library in the report.
Almost any perk granted to a CEO generates a tax bill, from an
executive life insurance policy paid by the company to country
But one of the most common reasons cited by the report for tax
"gross-ups" is use of the corporate jet. Since the Sept. 11
attacks, for security reasons, the boards of many companies have
encouraged their CEOs to fly on private jets rather than
commercial airlines when traveling on business. Public
companies often allow the CEOs to use the corporate jet for
personal travel as well.
Personal use of the company plane is a form of compensation to
the executive, so it generates a tax liability. But rather than
making the CEO pay tax on that benefit, dozens of companies in
the Russell 3000 pick up the tax bill.
The Corporate Library report singles out Ryland Group, a
home-building company, as the biggest provider of "gross-up"
payments to its CEO. For 2007, Ryland provided CEO R. Chad
Dreier with $4 million in gross-ups as part of a pay package
that totaled $12 million. Ryland did not return calls for
Revelations about corporate perks can create ill will among
investors, says Ira Kay of the compensation consulting firm
"We advise our clients to minimize perks as much as possible,"
he says. "It's an irritant to shareholders and a distraction
from incentive plans that work well."
Alan Johnson of Johnson & Associates suggests that many
companies maintain a corporate jet primarily to accommodate the
CEO, or, if the company already has a corporate jet that's used
for business, a CEO's needs can lead the company to lease
Some companies, such as General Mills, have canceled the
personal-use-of-the-corporate-jet perk. It's a trend that's
likely to grow, says Watson Wyatt's Kay.
Hodgson agrees. "There are more boards who are less happy
paying for quite so many perks now that they've been exposed,"
he says. "I'm expecting a reduction in number and range of
perks being paid."