The Growth of Perquisites
Expensive company-paid perquisites--such as country club memberships and the use of the company planes--are among the examples experts cite most of corporate excess.
Executives who can most afford to pay for life’s luxuries are granted what they need, while company underlings are forced to muddle through with few, if any, offers of help from their firms, compensation consultants point out.
For example, California’s biggest companies commonly give their highest paid executives low-interest loans to help them buy homes. And some firms reimburse top officers for medical and dental services not covered by the company’s health plan.
Some compensation experts acknowledge that there are business reasons to provide certain perks for top executives. For example, companies argue that country club memberships provide more benefits than just recreation for the executive. They note that a lot of business is done on the golf course and during dinners at the club.
Such perks reached a peak in the 1970s, when tax laws allowed corporations to give their executives non-cash benefits on a tax-favored basis. Though the tax breaks are now gone, companies find it difficult to take away benefits that officers have become accustomed to.
Still, compensation experts maintain that these perquisites are on the decline. Consultants have been urging their clients to scale back these plans because they cause tremendous resentment among company workers.
“This is showing your hand to the world. You are saying, ‘There is no fairness here,’ ” said Graef Crystal, a professor at UC Berkeley. “The people who need it don’t get the money. The people who don’t need the money get everything.
“Why do you want to raise an issue of fairness for a few thousand dollars?” he added.
Nevertheless, perks remain commonplace.
Almost every large company in the state notes that executives get at least a few benefits not available to the rank and file. And some firms give their officers so many perks that they are forced to report the cost of these deals to their shareholders.
Some noteworthy perk packages, according to The Times survey:
* At Great Western Financial Corp., a Beverly Hills-based thrift holding company, top executives are entitled to company cars, tax and financial planning advice, reimbursement for medical and dental expenses that are not covered by the company health plan and, sometimes, personal use of the company plane.
Chairman James F. Montgomery received $92,562 worth of these perks in 1990, while John F. Maher, president, recorded a $68,580 annual benefit. Montgomery earned $1,350,933 last year, while Maher’s salary amounted to $924,849.
* J. Tracy O’Rourke was recruited to become chief executive of Palo Alto-based Varian Associates last year. But it wasn’t easy. To get this executive to move, the maker of electron devices and analytical instruments had to agree to sell two other homes that he owned, and Varian had to loan O’Rourke the money to buy a new home.
Varian’s $1.26-million home loan to O’Rourke is backed by two IOUs. One, for $700,000, will bear an interest rate based on the appreciation of the property. The other, for $560,000, is interest free.
The cost of these arrangements? $348,677 in 1990.
This was in addition to O’Rourke’s 1990 pay of $782,192.
* George M. Scalise, president of Maxtor, borrowed $915,331 from the San Jose-based maker of computer disk drives to buy company stock. The interest rate is a modest 9.22%. Better yet, the company forgives 25% of his debt--just under $230,000--each year. His salary: $1,081,305.
* When Acuson Corp., a Palo Alto-based maker of medical diagnostic imaging systems, hired John G. Freund to be a vice president of corporate development at a salary of $275,000 annually, the company also agreed to loan him $600,000 to buy a home.
Freund must repay $100,000 of that amount. But the other $500,000 in debt will be “forgiven” if Freund works for Acuson for seven years. The company has also agreed to pay the taxes that Freund will incur from Acuson’s $500,000 gift. That amounts to another $266,000, the company said in its proxy statement.
* Gregory B. Lawless, president and chief operating officer of Chiron Corp. in Emeryville, Calif., got a $200,000 loan at 6% to help him buy a new house. The biotechnology company paid Lawless $256,042 in 1990.
* At Anthony Industries, a Los Angeles-based pool company, executives get reimbursed for 150% of the cost of medical and dental expenses that are not paid by the company’s health insurance plan. In 1990, Bernard Forester, the company’s chairman and chief executive, got $14,600 to pay his medical expenses.
Why pay 150% of these costs rather than just 100%? Taxes. If the company gives executives only enough money to pay their medical bills, they may lose some of the benefit by having to pay Uncle Sam. So, the company pays more to cover the tax bill.
Forester earned $568,400 in 1990.
* Some of the best perks are in the entertainment industry. Consider Los Angeles-based Fries Entertainment. Its founder and chief executive, Charles W. Fries, earned $1,034,816 in 1990. But that was just the beginning.
The television production company provides him with a life insurance policy, a limousine and a chauffeur, as well as “another prestige car” every other year and “miscellaneous” other benefits. Total cost to the company in 1990: $83,400.
Additionally, Fries Entertainment is paying for the construction and equipment of a screening room, security system and telephone system at Fries’ residence at an aggregate cost to the company of $122,000.
