Smaller Perk Packages for CEOs

A study by compensation researcher Equilar indicates that the SEC's new rules on disclosure may be affecting the value of executives' benefits

by Douglas MacMillan

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The fear of shame remains a remarkable motivator.

When the Securities & Exchange Commission declared that companies would be required to disclose every executive perk costing the company $10,000 or more, some scoffed that the ruling would have little impact. But the SEC's rules took effect at the start of 2007, and the early signs are intriguing: Corporate spending on several favorite perks has declined, and the combined value of the assorted extras lumped into the category of "other compensation" has edged lower, according to a new study shared exclusively with BusinessWeek.

The median value of benefits and perks received by chief executive officers at nearly 100 of the nation's largest companies fell 1.3% in 2006, to $334,433, according to the analysis by Equilar, a Redwood Shores (Calif.) research firm. And the median declined in three of the five perk categories Equilar studied. (There's a one-year lag in compensation disclosures, so this year's proxy filings quantified the perks received in 2006, and last year's proxies detailed those received in 2005.)

Equilar is quick to point out that the drop in certain perks is driven in part by the new rule itself rather than any resulting change in behavior: Because the old rules only forced disclosures of individual perks worth $50,000 and up, the non-itemized ones below that threshold couldn't be calculated into the averages for past years. The sudden disclosure of so many items worth less than $50,000 would naturally exert a downward pull on the averages. Still, Equilar also gives partial credit for the declines to "perk paranoia" brought on by the new rules, with companies opting to nix certain extras rather than deal with bad publicity.

A New Tax Bite

Not surprisingly, more companies were forced into the perk confessional. In five different categories—personal aircraft use, flexible perk accounts, security, tax reimbursements, and financial planning—the number of companies disclosing an expense was greater than in 2005. That helps to paint a "more complete picture" of executive perks, says Equilar's research manager, Alexander Cwirko-Godycki. "There's definitely a sense that companies are trying to provide more detail, rather than leaving people to assume what [executives] might be getting," he says.

In terms of specific fringe benefits, the biggest decline came in what some consider the most perverse perk of all—the reimbursements companies give top executives for the personal income taxes they owe on their other perks. Last year, the median value of these reimbursements, or "gross-ups," fell more than 40%, to $23,951, compared with 2005 levels.

However, as Equilar looked at only about 100 of the biggest companies, the data excluded one of the most extravagant gross-ups of all time. Of the $135 million golden parachute given to former North Fork Bancorp CEO John Kanas when he sold the bank to Capital One Financial (COF) last year, nearly a third went to cover his tax bill on the severance package (BusinessWeek, 03/22/07).

Leaving on a Jet Plane

Parting with perks may be a sad reality for executives, but departing in style is another matter. That most beloved of indulgences—and by far the most expensive perk—personal use of the corporate jet, rose last year despite the new disclosure rules, albeit at a slower pace than in 2005. In 2006, the median value of non-business travel on corporate aircraft rose 12.1%, to $121,676. Equilar's Cwirko-Godycki notes that aircraft use is one perk where outside factors such as rising fuel costs have made it more difficult to curb spending.

In a separate study of 215 public companies by the Portland (Me.) advocate The Corporate Library, CompuCredit (CCRT) CEO 1 2 Next Page