Perks persist, but Md. firms rethink them

June 18, 2006|By LAURA SMITHERMAN | LAURA SMITHERMAN,SUN REPORTER

Under Armour Inc. CEO Kevin A. Plank, whose stock holdings in the Baltimore sports-apparel company are worth more than a half-billion dollars, had shareholders pick up the $468 tab for his health club dues last year.

That's just one of a raft of perks that corporations have disclosed recently in annual proxy statements, from car leases to corporate jet rides, from home security systems to golf clubs.

Although perks have long been bestowed on corporate chiefs, companies are increasingly divulging even the cheapest of fringe benefits in the interest of transparency and ahead of rules, expected to take effect next year, that would compel far more disclosure.

The revelations are reinvigorating a debate over what constitutes a business expense and what amounts to a vestige of American corporate life at the top.

Board members, according to consultants who advise them on executive compensation packages, know that having shareholders cover the CEO's personal expenses smacks of greed, and many are re-examining their perk programs or considering cutbacks -- if they haven't yet implemented them.

Consultants say they have heard from directors who rather increase an executive's salary than pay for golf-course privileges, and who would rather give executives a perk allowance than be forced to detail how many dollars were spent on each extra benefit.

"A lot of companies say, `Look, we just can't do this anymore; I'll raise your salary $30,000 because nobody's going to blink over your salary -- nobody's going to give you any grief,'" said Jan Koors, managing director at compensation consultant Pearl Meyer & Partners.

An Under Armour spokeswoman declined to discuss Plank's perks, including the gym membership. Although the former University of Maryland football player-turned-CEO has said that he exercises to be able to fit into a large T-shirt, the size the company uses for prototypes, he hasn't commented on the perk.

What makes the company's disclosure remarkable is that it didn't have to make it. Under current rules, companies are only required to inform shareholders about perks that cost more than $50,000 in annual proxy statements.

As companies take a hard look at perks, they are distinguishing between "status perks" -- what Koors refers to as "holdovers from the old cigar and three-martini lunch days" -- and perks that might help a CEO do a better job. She said that could mean freeing up an executive's time for work by paying for a personal financial planner, or enabling an executive to network and drum up business by paying for a membership at the local country or dining club.

In recent years, more CEOs, along with rank-and-file employees, have been afforded BlackBerries and laptop computers for use outside the office. But unlike lower-level workers, more executives have had companies pay for bodyguards and home security systems, said Janet Den Uyl, a partner at Mercer Human Resource Consulting.

"That has come up since the early 1990s," Den Uyl said of the security perks. "It's a terrorism concern that a lot of different companies might have regarding their executives."

Last year, Lockheed Martin Corp. paid more than $37,000 to install a home security system for CEO Robert J. Stevens, and executives received personal use of the company aircraft and a company car, physicals, club dues, home office costs, and liability and accidental death insurance.

The company, in an e-mail response to questions, said it doesn't discuss security as a matter of policy. "However," the e-mail states, "we believe certain security measures are necessary based on the nature of our work for government customers."

Other corporations, including Towson-based Black & Decker Corp., insist that executives use a corporate jet for both personal and business travel, also for security reasons.

Spokesman Roger Young said the same security concerns apply whether travel is for business or pleasure. Last year, CEO Nolan D. Archibald's use of the aircraft cost the company more than $325,000. Young said the cost increased last year because of one "lengthy trip" that Archibald made for vacation. As for where the CEO went, Young said, "We would rather not discuss his personal travel plans."

According to a study by David Yermack, a professor of finance at New York University's Stern School of Business, more than 30 percent of Fortune 500 CEOs were allowed to use company planes for personal travel, a threefold increase from a decade earlier. He also found that if a CEO belongs to a golf course that is a long distance from the company's headquarters, personal use of the corporate aircraft increases "markedly."

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