Ventura County Star (California)
For CEOs of large companies, being the person in charge often means earning a hefty paycheck.
But benefits typically extend beyond a base salary to stock options and other extras, such as company-provided cars, ransom protection and season sports tickets.
Some companies offer lavish perks to their chief executive officers, while others brag about how their CEOs don’t receive anything different from other employees.
Some argue that perks boost productivity and the bottom line. Others want to see executives cover their gym memberships out of their own pocket.
Perquisites, or perks, include a range of things given to an executives on top of their salaries. Such benefits can often tally up to some pretty high dollar values. Typical perks include use of the corporate jet, financial services, club memberships and tuition reimbursement.
Whether a company offers perks has a lot to do with the company culture, said Ronald Hagler, business professor and director of the MBA program at California Lutheran University. Companies often offer perks because they help maximize the time executives have for conducting business while enhancing the quality of their lives, he said.
Hagler said perks also let a company give an executive certain benefits at a modest tax rate, since they are not considered income.
Local companies handle perks in different ways.
At Amgen Inc., the giant biotechnology company based in Thousand Oaks, executive perks include personal use of the company aircraft, personal use of a company car and driver, financial planning services, and reimbursement of personal expenses while on business trips.
Plane expenses divided
Amgen accounts for the cost of personal travel on company aircraft by looking at the variable operating costs, such as the cost of the crew’s travel expenses, landing fees and hangar costs. Fixed costs, such as the pilot’s salaries or cost of the plane, are not figured into the equation.
Countrywide Financial Corp.in Calabasas, the nation’s largest mortgage lender, uses a similar formula.
Guitar Center, a national music instrument retailer based in Westlake Village, takes a different approach. The company’s CEO can use the company airplane for personal travel, but under a time-sharing agreement. The executive is responsible for covering incremental costs such as the travel expenses of the crew, fuel and hangar fees.
At ValueClick Inc., an online advertising company in Westlake Village, there is only one perk — a car allowance for the company’s top executive in Europe. The company reports that such a car allowance is a customary practice in Europe.
Otherwise, ValueClick does not provide anything for executives beyond what’s available to other employees, such as the company’s contribution to a retirement plan or medical insurance.
ValueClick notes in its SEC filings that “we believe that the various forms of cash compensation and equity awards provided to our NEOs (named executive officers)… provide a competitive package that is sufficient to recruit and retain our NEOs.”
Carmen Balber, consumer advocate with the Foundation for Taxpayer and Consumer Rights in Santa Monica, said the perk system in general is “over the top.”
There are examples of perks that benefit all employees, such as a company gym open to everyone, she said. But she argued that other extras, such as club memberships for the CEO, don’t help the company’s bottom line.
A study published in the Journal of Financial Economics in 2006 looked at the use of perks.
It found that perks might boost productivity, arguing that an executive who arrives on a company jet might be more prepared for negotiation than one who flew in economy class on a commercial airline. And a chauffeured car lets an executive handle paperwork and phone calls while traveling in rush hour.
In those cases, the perk might be worth more to the company because otherwise executives might be more inclined to take a cheap flight or drive themselves.
The study cites earlier research, however, that found companies paid the price in the value of their stock when executives used the corporate jet for personal travel.
Directors call the shots
Whether a perk is appropriate or excessive is up to a company’s board of directors, Hagler said.
Recent corporate scandals that raised questions about perks and how they are reported have triggered greater scrutiny.
“Shareholders are looking at those much closer, and, as a result of that, so are the directors now,” Hagler said.
With the Sarbanes-Oxley Act came new requirements for reporting perk amounts that create more transparency. Signed into law in 2002, it was in response to major corporate accounting scandals and sets standards for financial reporting.
Balber said simpler is better when it comes to executive compensation packages.
“Rather than giving a CEO a salary, then adding on dry cleaning, a chauffeur, golf clubs… it makes sense to pay the executive what you think they are worth and have them handle the extras,” she said.
Add-ons really add up
Chief executives of large public companies in the Ventura County area received a variety of perks in 2006. Stock awards and stock options, which can significantly boost an executive’s annual earnings, are not included in the category of “all other compensation” listed below.
Amgen Inc., Thousand Oaks:
Revenue: $14.3 billion
CEO: Kevin Sharer
Base salary: $1.48 million
Perks and other compensation: $956,818
Personal use of company aircraft: $250,387
Personal use of company car and driver, plus related taxes: $59,575
Personal financial planning and tax preparation and related taxes: $46,234
Company contributions to retirement and savings plan: $22,000
Company credits to supplemental retirement plan: $576,077
Note: Beginning this year, the company will no longer pay the taxes on perks.
ValueClick Inc., Westlake Village:
Revenue: $545.6 million
CEO: James R. Zarley
Base salary: $375,000
Perks: Beyond the benefits made available to all employees, such as a company match on the 401(k), there are no perks.
Company match to Zarley’s 401(k): $3,906
The one exception is a car allowance for the company’s top executive in Europe, only because it’s a common business practice there.
Mentor Corp., Santa Barbara:
Revenue: $302 million
CEO: Joshua H. Levine
Base salary: $500,000
Perks and other compensation: $18,746
Auto lease: $11,861
Life insurance premiums: $810
Matching 401(k) contributions: $6,000
In June, the company canceled the automobile allowance and increased executives’ base pay in an amount equal to the annual allowance.
Pacific Capital Bancorp, Santa Barbara:
(Parent company of Santa Barbara Bank and Trust)
Revenue: $717.9 million
CEO: William S. Thomas Jr.
Base salary: $525,961
Perks and other compensation: $38,897
Includes quarterly stock dividends, unspecified perks, 401(k) company match contributions, employee stock option plan dividends and life insurance premiums.
Countrywide Financial Corp., Calabasas:
Revenue: $11.4 billion
CEO: Angelo R. Mozilo
Base salary: $2.9 million
Perks and other personal benefits: $162,626
Personal use of the company’s aircraft: $89,939
Country club membership reimbursement: $15,481
Taxes owed on perks and other personal benefits: $16,045
Other perks are executive physicals, recreational activities while traveling for business, including expenses for spouses and guests, and tickets to cultural and sporting events. The company has now limited perks to current executives and will not make them available to new hires.
Guitar Center Inc., Westlake Village:
Revenue: $2 billion
CEO: Marty Albertson
Base salary: $733,542
Perks and other compensation: $59,850
Personal use of corporate aircraft: $8,240.
Automobile lease: $32,608
Health club: $10,363
Service award: $4,239
Profit sharing plan contribution: $4,400