The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here’s an article from the USA Today:

Big paychecks and options grants are two ways that CEOs score. But there also are perks – worth millions or more in some cases – that continue to be paid despite greater scrutiny over such windfalls. There are 19 current CEOs, including Omar Ishrak of medical device company Medtronic (MDT), Dion Weisler of HP (HPQ) and Mark Zuckerberg of social networking giant Facebook (FB), who were awarded “other compensation” – or perks as they’re commonly called – valued at $1 million or more in the most recent fiscal year, according to a USA TODAY analysis of data from S&P Global Market Intelligence. “We rarely see perks over $1 million,” says Dan Marcec, director of content at executive pay tracker Equilar. “When you do, you can venture to say they are unusual.”

Perks such as the personal use of the corporate jet or membership dues to country clubs continue to be a controversial way to pay CEOs. Perks have been flat for several years as investors pay closer attention to them. Big perk packages largely fell out of favor around 2011 when new regulation shined a bright light on everything companies were paying executives, says Robert Newbury, director on executive compensation at Willis Towers Watson. Suddenly additional disclosures prompted many companies to cut these payments, Marcec says. From 2011 through 2012, the number of Fortune 100 CEOs that got aircraft perks, for instance, fell 3.9 percentage points to 38.9%, Marcec says.

Pricey perks are still around, but are mostly ones companies think are highly defensible, Marcec says. The biggest total perk award, valued at nearly $26 million, went to Medtronic’s Ishrak. The value of his perks amounts to 65% of the total $39.5 million he was paid in fiscal 2015. Nearly all those perks were associated with the company repaying a tax Ishrak was hit with following the company’s corporate inversion, which moved its headquarters to Ireland.

When Medtronic bought Ireland’s Covidien, that triggered a capital gains tax that all investors including Ishrak had to pay. It also triggered an excise tax from the federal government, which serves as a sort of penalty for such moves. The company repaid that excise tax back to Ishrak as well as other members of the management team. The “gross up” payment was made to allow management “to focus on what is in the best interests of the company, and not on their personal finances,” according to a statement from company spokesman Fernando Vivanco.

Payments to help CEOs pay big tax liabilities continue to be sources of big big perks. HP’s Dion Weisler pulled in perks of $12.1 million – coming from several key benefits. Weisler got a $9.1 million payment in order to cover additional taxes resulting from the fact Weisler moved to the U.S. But there other perks connected to his move. Weisler, who used to live in Singapore, was paid $2.4 million to pay for his permanent relocation to Palo Alto, Calif., where the company is based.

Seems like being a famous CEO comes with a cost – one that companies might help pay. Facebook’s Zuckerberg is paid $1 in salary and has been given no stock grants for years for his role as CEO. But he received $5 million in perks – of which $4.3 million is connected with costs of personal security at his home and during personal travel. Just showing how much more costly it’s getting to protect Zuckerberg, the cost of his personal security is up 61% from 2013.

Keeping Zuckerberg protected also costs nearly three times more than the $1.6 million Amazon has paid to secure its famous billionaire CEO, Jeff Bezos. Bezos’ security program had been one of the most costly for years, Marcec says, but has been easily surpassed by Zuckerberg’s. Facebook declined to comment. But Facebook’s regulatory filing states, “Because of the high visibility of our company, our compensation and governance committee has authorized an ‘overall security program’ for Mr. Zuckerberg to address safety concerns due to specific threats to his safety arising directly as a result of his position as our founder, Chairman, and CEO.”

Like Zuckerberg, Steven Kean, CEO of energy firm Kinder Morgan received $1 in salary and was paid no bonus or stock awards. His entire $1.1 million in compensation for 2015 came from “other compensation.” That payment represented dividend equivalents, or payments due on stock he has not yet vested. Kean requested “that he not receive dividend equivalent payments on his shares of restricted stock for the third and fourth quarters of 2015,” according to an email from spokesman Richard Wheatley. “His total compensation for 2015 consists of dividend equivalents on his shares of restricted stock for the fourth quarter of 2014 and the first and second quarters of 2015 and certain benefits available to our U.S. employees generally.”

So while companies are cutting back in perks overall, there are still big ones companies think are worth the price – and scrutiny. “Companies’ evaluation determines if (perks) satisfy a business need to help executives perform seven days a week,” Newbury says. “If companies can justify them, they leave them in.”