Top executives at public companies are well rewarded with salaries, bonuses and stock options. But a less obvious, but nonetheless lucrative, sort of compensation comes in the form of real estate deals and service contracts some have with the public companies they help manage.
In such cases, they are the customer, the salesperson and the merchant rolled into one. But companies assure shareholders in their proxy statements that these familial deals are in the best interest of everyone concerned--and that the transactions are no less favorable than could be obtained from unaffiliated parties.
"These linkages are not necessarily bad things," said Lawrence Wangler, a principal in the Irvine office of Towers Perrin, a national human resource consulting firm. "The office lease or the supply contract could be the best deal in town. It's up to the outside directors to make sure that it is a good deal."
Last year, St. John Knits Inc. leased its corporate office and adjacent manufacturing facilities in Irvine from G.M. Properties--a partnership in which the Gray Family Trust has a 50% stake. That means St. John's chairman and chief executive, Robert Gray, did business with himself--bringing home about $500,000 from the publicly held company, of which he and his family own 11%.
Alhambra Partners, another partnership owned largely by Gray and his family, made $293,000 leasing a second manufacturing facility in Alhambra to St. John. And Ocean Air Charters Inc., solely owned by Gray and his wife, Marie St. John Gray--co-founders of the clothes design company--leased an airplane for business trips and a boat for entertainment purposes to St. John in 1993, making a total of $310,000.
Despite Carl N. Karcher's ouster as chairman from Carl Karcher Enterprises last fall, the company's founder still had several side deals with the corporation. The fast-food chain paid the Karcher Trust more than $1 million in rent for its two-story Anaheim headquarters, and another $474,000 to lease five restaurant properties--which have since been acquired by the corporation for nearly $2 million.
Westcorp Inc. likewise pays rent to its chairman and chief executive, Ernest S. Rady. A holding company for Western Financial Savings Bank, Irvine-based Westcorp leases space for its branch offices in Encino and Walnut Creek from Insurance Company of the West, a private company partly owned by Rady. Last year, the savings and loan paid $407,000 to ICW.
The money flows both ways: ICW shelled out nearly $100,000 to landlord Westcorp in 1993 for office space it uses in Orange, Fresno and Sacramento.
Westcorp also spent $150,000 last year to lease space for its Del Mar branch offices from the Ernest S. Rady Trust. Kearny Mesa Business Center, partly owned by Rady, collected $60,000 in rent checks from Westcorp for a San Diego location.
And that's not all. Property manager American Assets Inc., which is controlled by Rady, made almost $500,000 last year managing apartment buildings acquired by Westcorp through foreclosures.
"Our rule is that we only use (the outside services) of somebody who is associated with Westcorp when their price is actually lower than all other bids," said Westcorp President Stephen Prough.