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By Newsweek Editors
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Just how much is too much? It's a question that pops up every spring with fresh reports of CEO compensation windfalls. Thanks to the bull market and lavish stock options, the princely sums that top executives take home seem increasingly unhitched from reality. Henry Silverman, the chief executive of Cendant Corp., earned profits of $61 million last year by exercising stock options, even though his company had a horrible year. But such unwieldy numbers can be a little tough to get your mind around. Let's look at something we can all understand: executive perks. As executive compensation has mushroomed, perks have been growing right along. Many consultants who help set executive compensation defend big payoffs from stock options, saying they are a small tip for creating huge shareholder wealth. These same consultants also say they typically advise against perks because they send a message to employees that everyone isn't in the same boat. Lavish perks, they say, are simply a byproduct of bidding wars for executive talent. For their part, corporations often defend perks as a means to enable their CEO to focus all his energy on the job at hand. But scan through a sampling of recent proxy statements, and you can be forgiven for thinking that many CEOs don't expect to pay for anything themselves. Some recent hits from the perks parade:
There is no doubt that Frank J. Biondi Jr., the CEO of Universal Studios until last November, needed to watch a lot of movies at home to really excel at his job. And a fancy TV and VCR clearly wouldn't suffice. In its most recent proxy, Universal's parent, Seagram, says it spent more than $1.7 million to build a screening room at Biondi's L.A. home. The company owns it, mind you, and therefore has paid the costs associated with it, including property taxes, insurance and regular dusting of the screen. Now that Biondi is gone, he's supposed to buy it from the company at some discounted value, or his former employer will remove it and restore the property. Right. (Seagram won't comment on the status of the screening room. Biondi said the issue is unresolved.)
It certainly pays to be a CEO. Sometimes it pays better to be a former CEO. When Delta Air Lines ousted Ronald W. Allen in 1997, he was guaranteed a hefty severance. But the bills keep coming in. In its most recent fiscal year, Delta paid $25,565 for a home security system. It also paid a $210,000 legal tab to work up his retirement agreement. (By contrast, it cost his successor, Leo F. Mullin, only $61,947 in legal fees for his employment agreement to join Delta, a bill the airline also paid. It costs more to get divorced than married.) Oh, yes, Allen also received $91,099 for an office and secretary. And $408,776 to design, build and furnish said office. Precisely who would be responsible for buying Post-it notes was not explained in the company's filings. Delta officials declined to comment further, saying the proxy statement speaks for itself.
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A lot of CEOs face the challenge of having a bargeload of money delivered to their door every year. It's understandable that many of them might be baffled about what to do with it all. So they typically hire financial planners. And whose responsibility should it be to pay for this personal financial advice? You're catching on. The company, after all, created this mess by paying out all that money, so it should darn well help sort it out. The employment agreement for Norman C. Payson, who took over last year at Oxford Health Plans, says he gets $50,000 a year for financial planning and tax advice (some of that advice undoubtedly includes handling the tax accounting for the company-provided car "of his choice"). Oxford, which declined to comment, is hardly alone in footing the bill for financial consulting for its CEO. It's a practice that Judith Fischer, managing director of Executive Compensation Advisory Services in Springfield, Va., finds inexcusable. "It's unnecessary and should be embarrassing to the corporation," she says. "I'm sure if they didn't pay it, the executive would not leave."
Another CEO perk is the right to fire up the corporate jet for personal use. SEC rules require the cost of such benefits to be reported in company filings, although what the documents show is really a cashless transaction--companies give money to executives to then pay the company back for their weekend jaunts. Aon Corp., for example, paid its CEO, Patrick G. Ryan, $271,635 to cover his reimbursement costs for using the company's jet and car.
Some companies do appear to be cutting back, though their starting point can be rather extreme. Occidental Petroleum has long been one of the most generous companies in corporate America to its executives. In 1997, for example, the company made headlines when it announced that it was giving its CEO, Ray R. Irani, $95 million to buy out his old employment agreement with Occidental and give him a new one. Last year, though, Irani received only his salary of $1.2 million, and no bonus. Gone was the pay he had received in previous years for things like club memberships and dues, and accounting services.
Still, perks have a way of coming back like weeds. There are "personal living expenses," for example. Value City Department Stores gave its CEO, Martin P. Doolan, $27,954 to cover his housing costs. Stephen C. Hilbert, the CEO of Conseco, can get reimbursed for medical expenses of up to $10,000 that are not covered by health insurance. Some companies also give loans with a below-market interest rate to executives. Taxes have to be paid on that benefit, which is like income. Who pays those taxes? Bingo. Next time you're at your local bank branch, ask if they have such loans available for you.
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