English
Well-known member
- Joined
- Nov 26, 2001
- Posts
- 3,374
The corporate jet: Necessity or ultimate executive toy?
By Gary Strauss, USA TODAY
When it comes to one choice perk, the sky's the limit for many CEOs.
Personal use of the corporate jet is soaring among Corporate America's
elite. More than 250 CEOs racked up personal flight time worth at least
$50,000 in 2004; more than 100 CEOs and senior managers ran up tabs of
$100,000 or more, according to a USA TODAY analysis of Securities and
Exchange Commission corporate filings.
The ranks of CEOs with extensive personal use of company planes have surged
since 2002, when 140 had flight tabs of $50,000 or more and just 33 had
$100,000 or more.
Virtually all CEOs' personal flight costs were paid by their companies.
Since the IRS values personal flight time as taxable income, many companies
also covered CEOs' flight-related taxes. For example, eBay spent $229,145
for CEO Meg Whitman's personal plane use in 2004 and what the online
auctioneer characterized as a $128,390 "bonus" to cover her taxes on the
imputed income.
A look at some free rides
Scores of companies allow their top executives to use company planes for
personal travel — with shareholders typically paying the tab. Here are
some arrangements found in corporate filings with the Securities and
Exchange Commission.
The $300,000-a-year-plus club
These are some executives who racked up over $300,000 in company-paid
personal travel expenses last year. Some companies require top executives to
use corporate or private planes for security even when traveling for
personal reasons.
William Harrison, J.P. Morgan Chase; $313,613.
Herbert Zarkin, BJ's Wholesale Club; $324,761.
Tracy Krohn, W&T Offshore; $405,624.
Three-way play
Semitool CEO Raymon Thompson received $143,442 in company-paid expenses for
his personal use of three planes that Semitool leases from companies he
owns. The leases cost Semitool $2.8 million in fiscal 2004. This year,
Semitool will pay $3.28 million to lease the planes and hangar space.
Flying into the sunset
Some executives retain rights to company-paid personal flights after they
retire. Under a consulting agreement that calls for a maximum 20 hours a
week of "advisory" services, former Tyson Foods chairman Don Tyson gets $1.2
million annually through 2011, plus 150 hours of personal use of company
aircraft for himself or designated passengers. In fiscal 2004, his flight
time cost the company $92,764.
Wife flies free
Duke Energy CEO Paul Anderson receives no salary, only an $11.3 million
restricted stock award when he joined the company in 2003. But the company
pays for his personal flight time, as well as his wife's. Last year, the
couple's personal flights cost the utility $134,507. An independent
consultant advised last year that the couple fly by corporate jet "whenever
possible for personal travel," according to the company's proxy.
Paying pilots
Trump Hotels and Casino Resorts doesn't pay for Donald Trump's personal use
of an aircraft he owns. But last year it spent $300,000 on the pilots'
salaries, because the aircraft transports casino customers.
Contributing: Kelly Barry, Darryl Haralson
The swelling numbers reflect heightened post-Sept. 11 security concerns, a
thriving business-jet market, a tax code that allowed executives to fly at
ultralow prices and companies to claim tax breaks, and more broadly, growing
acceptance by corporate boards that personal flight time is a perk necessary
to keep CEOs happy. Big users:
• Leucadia National's Joe Steinberg, whose personal flights cost the
diversified holding company $743,556 in 2004, 18% more than his $630,429
salary. Leucadia and Steinberg, who ran up $616,100 in 2003 flight costs,
declined comment.
• Morgan Stanley CEO Philip Purcell, required by company policy to use
corporate aircraft for personal travel "whenever feasible," ran up $467,000
in 2004 personal flight costs. That's on top of $21.9 million in
compensation and an $18 million stock-option gain. The company declined
comment.
• TXU's John Wilder received $560,982 in personal flight time for
"security and safety purposes," according to the utility's proxy. That's on
top of Wilder's more than $53 million in salary, bonus, stock and incentive
payments. Wilder uses the plane to commute from TXU's Dallas office to his
New Orleans home, "part of a negotiated contract when we hired him a year
ago," says spokesman Chris Schein.
Corporate ownership and leases have jumped nearly 70% since the early 1990s.
Nearly 16,000 companies operate their own aircraft; thousands more have
fractional ownership through providers such as NetJets. As business use
spreads and commercial flights grow more arduous, many CEOs found the
convenience and opulence addictive.
As a security measure or perk, companies justify their CEOs' personal use of
corporate planes, saying the convenience, protection and hassle-free travel
private aircraft provide is well worth the corporate cost. Georgia-Pacific,
for example, spent $176,353 on 2004 personal flight time for executives but
says it's a fringe benefit needed "to remain competitive in the market for a
high-quality management team," according to its proxy.
TXU notes that since Wilder was hired in February 2004, its market value has
climbed to about $20 billion from $6.2 billion — a fraction of his flight
costs.
Returns at other companies that permit personal plane use haven't been as
robust. New York University finance professor David Yermack tracked Fortune
500 firms that paid for CEOs' personal flight time from 1992-2002. In his
study Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior
Shareholder Returns, he found they lagged behind the benchmark Standard &
Poor's 500 by 4 percentage points a year.
"It's clear companies giving this perk perform poorly, and there's no reason
to think that's changed," he says. "There may be a justifiable business
purpose, but there are lots of companies that wouldn't have bought planes in
the first place if the CEO didn't have his eye on it for the toy factor."
Setting a tone
With executive compensation skyrocketing, corporate governance experts say
shareholders shouldn't foot the bills. "When setting the tone, boards need
to ensure there isn't one playbook for executives and another for the rank
and file," says Eleanor Bloxham of The Value Alliance. "Why pay for perks
CEOs could easily buy for themselves?"
USA TODAY tried posing that question to more than two dozen companies. None
would comment. Even CEOs who reimburse employers for flight costs, such as
Level 3 Communications' James Crowe — who repaid $188,474 in 2004 —
declined to talk.
After reports of heavy personal plane use among disgraced CEOs and negative
PR heaped upon former General Electric CEO Jack Welch over his
post-retirement use of company jets, "Culturally, you don't want to send a
message to the market, employees or customers that CEOs are treated
preferentially," notes compensation specialist Mike Kesner of Deloitte
Consulting.
Perception aside, the actual costs of CEOs' personal flights borne by
shareholders are much greater.
Few companies disclose the type of aircraft CEOs use, hours of flight time,
destinations or who else, such as family members, are also on board. The SEC
requires companies only to report the additional costs as CEO imputed
income. The value typically had been tied to comparable first-class
commercial airfares, a formula that deeply discounted actual flight costs
and excludes broader expenses, such as aircraft costs, pilots' salaries and
maintenance.
A 10-hour round-trip New York-Los Angeles first-class ticket on a major
airline costs about $1,100. A flight aboard an aircraft that a company
shares with others under a fractional-ownership arrangement might cost
$5,000 an hour. A comparable trip aboard a privately chartered Gulfstream IV
could cost $100,000.
Under a provision of the 2004 American Jobs Creation Act, companies lost the
ability to deduct the difference between the imputed income value to CEOs
and more accurate costs of their flights, including fuel, crew expenses and
landing fees. The IRS hasn't determined what formula it will require
companies to use to report more accurate costs. Some firms already account
for higher incremental charges, but that methodology "severely understates
actual costs," says David Cay Johnston, author of Perfectly Legal: The
Covert Campaign to Rig Our Tax System to Benefit the Super Rich — and
Cheat Everybody Else.
Despite the loss of the tax break and higher reporting costs, most companies
aren't likely to rein in personal flight time. "A lot will just absorb the
increase as the cost of doing business," says Lou Meiners, head of business
adviser Advocate Aircraft Taxation.
By Gary Strauss, USA TODAY
When it comes to one choice perk, the sky's the limit for many CEOs.
Personal use of the corporate jet is soaring among Corporate America's
elite. More than 250 CEOs racked up personal flight time worth at least
$50,000 in 2004; more than 100 CEOs and senior managers ran up tabs of
$100,000 or more, according to a USA TODAY analysis of Securities and
Exchange Commission corporate filings.
The ranks of CEOs with extensive personal use of company planes have surged
since 2002, when 140 had flight tabs of $50,000 or more and just 33 had
$100,000 or more.
Virtually all CEOs' personal flight costs were paid by their companies.
Since the IRS values personal flight time as taxable income, many companies
also covered CEOs' flight-related taxes. For example, eBay spent $229,145
for CEO Meg Whitman's personal plane use in 2004 and what the online
auctioneer characterized as a $128,390 "bonus" to cover her taxes on the
imputed income.
A look at some free rides
Scores of companies allow their top executives to use company planes for
personal travel — with shareholders typically paying the tab. Here are
some arrangements found in corporate filings with the Securities and
Exchange Commission.
The $300,000-a-year-plus club
These are some executives who racked up over $300,000 in company-paid
personal travel expenses last year. Some companies require top executives to
use corporate or private planes for security even when traveling for
personal reasons.
William Harrison, J.P. Morgan Chase; $313,613.
Herbert Zarkin, BJ's Wholesale Club; $324,761.
Tracy Krohn, W&T Offshore; $405,624.
Three-way play
Semitool CEO Raymon Thompson received $143,442 in company-paid expenses for
his personal use of three planes that Semitool leases from companies he
owns. The leases cost Semitool $2.8 million in fiscal 2004. This year,
Semitool will pay $3.28 million to lease the planes and hangar space.
Flying into the sunset
Some executives retain rights to company-paid personal flights after they
retire. Under a consulting agreement that calls for a maximum 20 hours a
week of "advisory" services, former Tyson Foods chairman Don Tyson gets $1.2
million annually through 2011, plus 150 hours of personal use of company
aircraft for himself or designated passengers. In fiscal 2004, his flight
time cost the company $92,764.
Wife flies free
Duke Energy CEO Paul Anderson receives no salary, only an $11.3 million
restricted stock award when he joined the company in 2003. But the company
pays for his personal flight time, as well as his wife's. Last year, the
couple's personal flights cost the utility $134,507. An independent
consultant advised last year that the couple fly by corporate jet "whenever
possible for personal travel," according to the company's proxy.
Paying pilots
Trump Hotels and Casino Resorts doesn't pay for Donald Trump's personal use
of an aircraft he owns. But last year it spent $300,000 on the pilots'
salaries, because the aircraft transports casino customers.
Contributing: Kelly Barry, Darryl Haralson
The swelling numbers reflect heightened post-Sept. 11 security concerns, a
thriving business-jet market, a tax code that allowed executives to fly at
ultralow prices and companies to claim tax breaks, and more broadly, growing
acceptance by corporate boards that personal flight time is a perk necessary
to keep CEOs happy. Big users:
• Leucadia National's Joe Steinberg, whose personal flights cost the
diversified holding company $743,556 in 2004, 18% more than his $630,429
salary. Leucadia and Steinberg, who ran up $616,100 in 2003 flight costs,
declined comment.
• Morgan Stanley CEO Philip Purcell, required by company policy to use
corporate aircraft for personal travel "whenever feasible," ran up $467,000
in 2004 personal flight costs. That's on top of $21.9 million in
compensation and an $18 million stock-option gain. The company declined
comment.
• TXU's John Wilder received $560,982 in personal flight time for
"security and safety purposes," according to the utility's proxy. That's on
top of Wilder's more than $53 million in salary, bonus, stock and incentive
payments. Wilder uses the plane to commute from TXU's Dallas office to his
New Orleans home, "part of a negotiated contract when we hired him a year
ago," says spokesman Chris Schein.
Corporate ownership and leases have jumped nearly 70% since the early 1990s.
Nearly 16,000 companies operate their own aircraft; thousands more have
fractional ownership through providers such as NetJets. As business use
spreads and commercial flights grow more arduous, many CEOs found the
convenience and opulence addictive.
As a security measure or perk, companies justify their CEOs' personal use of
corporate planes, saying the convenience, protection and hassle-free travel
private aircraft provide is well worth the corporate cost. Georgia-Pacific,
for example, spent $176,353 on 2004 personal flight time for executives but
says it's a fringe benefit needed "to remain competitive in the market for a
high-quality management team," according to its proxy.
TXU notes that since Wilder was hired in February 2004, its market value has
climbed to about $20 billion from $6.2 billion — a fraction of his flight
costs.
Returns at other companies that permit personal plane use haven't been as
robust. New York University finance professor David Yermack tracked Fortune
500 firms that paid for CEOs' personal flight time from 1992-2002. In his
study Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior
Shareholder Returns, he found they lagged behind the benchmark Standard &
Poor's 500 by 4 percentage points a year.
"It's clear companies giving this perk perform poorly, and there's no reason
to think that's changed," he says. "There may be a justifiable business
purpose, but there are lots of companies that wouldn't have bought planes in
the first place if the CEO didn't have his eye on it for the toy factor."
Setting a tone
With executive compensation skyrocketing, corporate governance experts say
shareholders shouldn't foot the bills. "When setting the tone, boards need
to ensure there isn't one playbook for executives and another for the rank
and file," says Eleanor Bloxham of The Value Alliance. "Why pay for perks
CEOs could easily buy for themselves?"
USA TODAY tried posing that question to more than two dozen companies. None
would comment. Even CEOs who reimburse employers for flight costs, such as
Level 3 Communications' James Crowe — who repaid $188,474 in 2004 —
declined to talk.
After reports of heavy personal plane use among disgraced CEOs and negative
PR heaped upon former General Electric CEO Jack Welch over his
post-retirement use of company jets, "Culturally, you don't want to send a
message to the market, employees or customers that CEOs are treated
preferentially," notes compensation specialist Mike Kesner of Deloitte
Consulting.
Perception aside, the actual costs of CEOs' personal flights borne by
shareholders are much greater.
Few companies disclose the type of aircraft CEOs use, hours of flight time,
destinations or who else, such as family members, are also on board. The SEC
requires companies only to report the additional costs as CEO imputed
income. The value typically had been tied to comparable first-class
commercial airfares, a formula that deeply discounted actual flight costs
and excludes broader expenses, such as aircraft costs, pilots' salaries and
maintenance.
A 10-hour round-trip New York-Los Angeles first-class ticket on a major
airline costs about $1,100. A flight aboard an aircraft that a company
shares with others under a fractional-ownership arrangement might cost
$5,000 an hour. A comparable trip aboard a privately chartered Gulfstream IV
could cost $100,000.
Under a provision of the 2004 American Jobs Creation Act, companies lost the
ability to deduct the difference between the imputed income value to CEOs
and more accurate costs of their flights, including fuel, crew expenses and
landing fees. The IRS hasn't determined what formula it will require
companies to use to report more accurate costs. Some firms already account
for higher incremental charges, but that methodology "severely understates
actual costs," says David Cay Johnston, author of Perfectly Legal: The
Covert Campaign to Rig Our Tax System to Benefit the Super Rich — and
Cheat Everybody Else.
Despite the loss of the tax break and higher reporting costs, most companies
aren't likely to rein in personal flight time. "A lot will just absorb the
increase as the cost of doing business," says Lou Meiners, head of business
adviser Advocate Aircraft Taxation.
.
