Executive perks are drawing scrutiny
Even as the nation’s biggest financial firms were struggling and the federal government was spending hundreds of billions to save many of them, the companies as a group were boosting the perks and benefits they pay their chief executives.
The firms, which account for more $350 billion in federal bailout funds, increased these perks and benefits 4% on average last year, according to an analysis of corporate disclosures filed in recent months.
Some chief executives, such as Kenneth D. Lewis of Bank of America Corp. and Jeffrey Peek of CIT Group Inc., the major small-business lender now on the brink of bankruptcy, each received about $100,000 more than a year earlier for personal use of corporate jets. Others saw an increase in the value of chauffeured services, parking or personal security.
Ralph W. Babb Jr., chief executive of the Dallas-based lender Comerica, was compensated for a new country club membership, with an initiation fee and dues of more than $200,000. GMAC Financial Services Chief Executive Alvaro de Molina benefited from a $2.5-million payment to help cover his personal tax bill.
“You would have thought that this would be the moment when everyone said, ‘OK, the perks have got to stop -- at least while we’re indebted to the government,’ ” said Paul Hodgson, senior research associate at the Corporate Library. “But that didn’t happen.”
This year may turn out to be different. In June, the Treasury Department prohibited companies receiving bailout funds from reimbursing senior executives for their personal tax payments.
In the meantime, Kenneth Feinberg, the Obama administration official assigned to set pay for top executives at seven of the companies receiving the most help, plans to curtail perks such as country club fees when he rules on compensation this month, according to people familiar with the matter. Perks worth more than $25,000 are getting particular scrutiny from Feinberg.
On average, the chief executives at 29 of the largest public financial companies that have taken bailout funds received perks and benefits worth more than $380,000 in 2008, according to compensation figures included in annual proxy statements and supplied by Equilar, a compensation data services firm. Individually, about half the banks increased their fringe benefits to the top executives. The figures do not include relocation costs and related taxes, typically one-time fees that can skew year-over-year comparisons.
In contrast to the 4% average increase in perks and benefits at these companies, the average awarded to top executives at nonfinancial companies in the Fortune 100 declined by more than 7% over the same period, according to Equilar.
Personal use of corporate aircraft and “gross-ups” -- when the company pays taxes due on bonuses or other benefits -- represented more than half of the $11 million in noncash pay awarded to the 29 chief executives in 2008. Among the more common perks were company cars and drivers, as well as personal financial and tax-planning services.
Some banks, mindful of the popular resentment over the government’s $700-billion bailout of banks and other financial companies, have eliminated certain perks. And a few executives have voluntarily given up benefits that lawmakers have criticized as excessive. At Bank of America, for instance, senior executives will no longer use corporate jets for personal travel starting this year, a bank spokesman said.
Still, some companies that have taken away perks are making it up to executives by boosting their pay. SunTrust Banks Inc. eliminated most executive perks in 2008, according to a corporate filing. But the bank also noted that “base pay increases were made in 2008 to offset this reduction in perks.”
A spokesman for SunTrust, a recipient of $4.9 billion in government funds, said in an e-mail that the bank seeks to “maintain an executive compensation framework that is competitive, appropriate and consistent with industry practice, and we periodically make adjustments in line with that goal.”
Corporations have long defended perks as necessary for attracting and retaining talented executives. They also say some perks -- corporate jets and chauffeured drivers, for example -- are provided for security and to ensure that executives can work efficiently.
GMAC said that it had stopped using its corporate aircraft after receiving a federal bailout in late 2008 and that De Molina had declined a year-end bonus for 2008. He did receive a nearly $6-million award earlier in the year, however, and GMAC covered the taxes due on that bonus.
CIT, which cut its staff by 22% in 2008, declined to comment. Representatives for Comerica did not return phone calls.
