Executive perks are piling up

There's chauffeuring, country club memberships and more.

At Hormel Foods Corp., top executives looking for a scenic getaway can relax at a company-owned condo in Vail, Colo. On the way, they can grab a cocktail at an airport lounge where the Austin-based food maker takes care of the membership dues.

At Ameriprise Financial Corp., Chief Executive Jim Cracchiolo receives free chauffeur service, a home security system, personal use of a corporate aircraft and a $35,000 "executive perquisites allowance" -- on top of his $18 million in salary and stock options.

And at 3M Co., CEO George Buckley last year received $632,673 in total perks, nearly double his previous year's take. That included $167,574 in security services.

Executive perks have not just survived the worst economic downturn in five decades. They are flourishing.

In Minnesota, dozens of top executives continue to get free medical benefits, access to private jets, country club memberships, free financial planning services, generous hiring bonuses and other rewards, in some cases even as they cut costs elsewhere.

The Star Tribune reviewed 50 proxy statements filed since last summer by public companies with headquarters in Minnesota. Executives at these firms collected a total of $5.15 million in perks last year, up slightly from $5.1 million two years ago. The average firm in the sample paid out $105,075 in perks last year.

Among large corporations, the giveaways have almost become a ubiquitous part of executive compensation packages, as companies compete to attract and retain top talent.

"It's like an arms race," said Aaron Boyd, head of research at Equilar, an executive compensation research firm in Redwood City, Calif. "Company 'X' starts offering free financial planning to its executives, so everyone else has to do it to stay competitive. It just piles on and on."

Many perks serve legitimate business purposes. A corporate jet can benefit shareholders if it means a CEO is spending time on business rather than waiting for a flight at a crowded airport. Other perks, like club memberships, can save a company money if they help prevent a talented CEO from leaving, say compensation consultants.

"If that's the coinage in this world that it takes to get top executive talent, and to keep them productive, then go for it," Duke University securities law Prof. James Cox said. "We don't expect the president of the United States to fly coach ... and the same is true of people who have tremendous responsibilities" running public companies.

But once perks become entrenched, they are difficult to eliminate. That's partly because of a long-standing custom among corporate boards of basing compensation on the pay of their peers -- a practice known as "benchmarking."

If a majority of Fortune 500 companies offer free club memberships, the rest of them feel pressure to do the same. Few boards risk stepping outside the prevailing norm, say corporate governance experts.

Even firms that have dramatically downsized their workforces are keeping perks intact for senior managers. Hutchinson Technology Inc., a disk drive component maker in Hutchinson that has downsized three times since 2008 and just announced plans to shed 30 to 40 percent of its workforce over the next year, last year paid about $430,000 in perks to seven senior executives. CEO Wayne Fortun received an $11,770 car allowance and free financial planning services, on top of his salary and stock.

At Polaris Industries, a Medina-based maker of snowmobiles and off-road vehicles that is moving some of its production to Mexico, senior executives get free clothing, annual physicals at the Mayo Clinic, and access to an "Exec-U-Care" health plan that covers expenses not covered under the company's basic plan available to employees. Polaris also reimburses top executives for club initiation fees and monthly dues.

Executives worried about the tax bite of these corporate goodies can often rest easy. The reason: Corporate boards often reimburse senior managers for taxes owed on fringe benefits -- essentially a "perk on a perk."

"It's not good for morale when employees see their executives living in a world of their own, while the guy next to them just lost his job," said Eleanor Bloxham, founder and CEO of the Value Alliance, a board advisory firm in Columbus, Ohio.

The lucrative perks persist, in part, because few large investors are outraged by them, say governance experts. The dollar amounts doled out for club memberships, chauffeur services and the like can seem puny compared with the multimillion-dollar compensation packages that have become the norm among large public companies. Investors may grumble about the perks, but they rarely take the step of filing shareholder proposals to curb or eliminate them.

All told, just three public companies nationwide have received shareholder proposals this year demanding they amend their executive perk practices, according to Institutional Shareholder Services, a proxy-advisory firm that tracks shareholder proposals.

But perks can be an important gauge of a board's willingness to stand up to management, corporate governance experts say. "If a board can't just say 'No' to an extravagant perk, then they're probably not going to say 'No' to the next bad idea that comes along," said Paul Lapides, director of the corporate governance center at Kennesaw State University near Atlanta.

New disclosure rules have done little to dampen the practices. In 2007, U.S. companies were required to list perks valued at $10,000 in their proxy statements. The old rules limited disclosure of perks to those valued at more than $50,000.

Shareholder activists had hoped the rules would shame companies into getting rid of certain freebies. And soon after the rules went into effect, a small number of companies, including Hewlett-Packard Co., stopped the controversial practice of paying the tax bill of certain executive perks, such as aircraft use.

However, the public backlash proved shortlived. While the dollar size of payouts has fallen since 2007, the laundry list of giveaways remains intact. As of 2009, 66 percent of Fortune 100 companies offered personal use of corporate aircraft, and 60 percent of them offered free financial planning services. About half these companies still covered the tax bite of certain executive perks, according to a study by Equilar, the executive compensation research firm.

Sometimes, it takes a scandal to change a company's perk policy.

Minnetonka-based health insurer UnitedHealth Group got rid of most of its executive perks after revelations emerged in late 2006 that former CEO William McGuire and others at the company had been granted stock options "backdated" to a day when the stock price was at a low price. Prior to the change, McGuire and four other top executives were collecting more than $600,000 a year in freebies, on top of millions of dollars in stock options and other compensation.

In last year's proxy statement, UnitedHealth stated, "We do not believe that providing generous executive perquisites is either necessary to attract and retain executive talent or consistent with our pay-for-performance philosophy."

Chris Serres • 612-673-4308

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