Executive pay shows modest 2012 gain, but oh, those perks

Nelson D. Schwartz / New York Times News Service /

Relax. Sit back. And forget, for a moment, those pesky shareholders and bothersome boards, the regulations, the investigations and all the other headaches of being a chief executive today.

Dodd-Frank rules? Securities and Exchange Commission lawyers? Leave them behind. And let yourself sink into the buttery leather seat of your corporate jet as it soars through the clouds.

That’s what Steve Wynn did. As chief executive of Wynn Resorts, he sat back and enjoyed more than a million dollars’ worth of personal travel last year on his company’s private jet.

It gets better: in December, the company took delivery of the first G650 jet to roll off Gulfstream’s assembly line. A $65 million wonder, the plane can whisk Wynn from Las Vegas, where Wynn Resorts has its headquarters, to New York, where he owns a $70 million penthouse overlooking Central Park, and it should make 2013 another busy year aloft for him. (Wynn Resorts declined to comment.)

Indeed, while Wynn may have been a very frequent flier in 2012 among chief executives listed in an annual survey of executive pay conducted for The New York Times by Equilar, an executive compensation data firm, he has plenty of company in the shareholder-unfriendly skies.

As CEO of Hertz, Mark Frissora pushes rental cars, but he racked up nearly a half-million dollars’ worth of personal travel on the corporate jet last year.

Marsh & McLennan, the risk management company, doesn’t own its own plane — it prefers holding a fractional share of a jet — but that didn’t stop its chief, Brian Duperreault, from running up $441,875 in private plane travel on the company tab before he retired at year-end.

These high-fliers help explain why pay for perks like jet travel and other supplemental benefits including pension contributions and life insurance policies jumped last year, even as overall compensation rose only modestly.

For the 100 highest-paid CEOs among American companies with revenue of more than $5 billion, the typical 2012 perks package was worth $320,635, up 18.7 percent from 2011, according to an analysis by Equilar for The Times. By contrast, median total pay among the 100 CEOs rose just 2.8 percent, to more than $14 million.

The data are preliminary — public companies have 120 days after their fiscal year-end to disclose the pay of top executives in their proxies. Many corporations whose fiscal year ended in December won’t file before the end of April.

Still, the data reveal the contours of executive pay packages. Besides the jump in perks, overall cash compensation also made a comeback, rising 19.7 percent, to $5.7 million. Cash bonuses jumped 25 percent.

Among the highest, lowest

The highest-paid CEO, Lawrence Ellison, of Oracle, perennially ranks among the best-paid executives, but other leaders in 2012 didn’t come from sectors where you might expect to find them, like technology or Wall Street.

Instead, companies with familiar brand names were among the most generous, with Robert Iger, of Disney; Mark Parker, of Nike; Howard Schultz, of Starbucks; and Kenneth Chenault, of American Express, all in the top 10, each with more than $25 million in total compensation.

The second-highest-paid chief executive on the list, Richard Bracken of the hospital chain HCA, received more than half his pay in the form of special compensation worth nearly $22 million, but it was nearly all from dividends rather than traditional perks like the company plane.

Shareholders, too, enjoyed solid gains in 2012, with the typical company’s stock returning 17 percent.

And at a few companies where profits dropped, CEO pay declined as well. At Ford, where earnings per share fell 7 percent, the pay of the chief executive, Alan Mulally, sank 29 percent. James Gorman, the chief of Morgan Stanley, saw his compensation fall 20 percent as both revenue and profits at the company tumbled in 2012.

J.C. Penney did not make this year’s list because it filed its proxy after the March 29 cutoff, but its board definitely sent a message to Ron Johnson, the former Apple executive who took over in late 2011 and has so far failed to turn around this troubled retailer. It cut his total compensation by almost 97 percent, to $1.9 million, and didn’t give him and several other top execs any bonus payments.

The most notable decliner in 2012 was the highest-paid CEO in 2011: Tim Cook, the CEO of Apple, was awarded $377.9 million in 2011 — almost all of it in stock — but in 2012, he was paid just $4.2 million in cash, too low to make this year’s list at all. The drop, however, is more a quirk in how pay is handed out than any judgment about Cook’s tenure. Because the outsize 2011 package vests over the course of a decade but was counted all at once in 2011, sizable new year-to-year awards aren’t being made in the meantime, limiting his annual totals.

The money spent on perks accounts for a relatively tiny portion of overall compensation packages, but the increase is striking because it comes even as business leaders have become more sensitive about public perceptions of compensation excesses, corporate governance experts say.

Under the Dodd-Frank financial reform law passed in 2010, companies are now required to ask shareholders for their approval of executive pay packages. These so-called say-on-pay votes are nonbinding, but the ignominy of failing to win approval has received boards’ attention.

So in an age when shareholders can now make their collective views known publicly, it can seem downright provocative to let the company pick up the bill for lavish trips, big security entourages and housing subsidies.

“It’s dumb with a capital D,” said Alan Johnson, a consultant who advises boards on how best to structure compensation packages. “You’re rubbing it in the faces of shareholders and employees. It fails the IQ test.”

Personal travel on the company plane may be the favorite perk, but a few chief executives managed to gain some other interesting freebies. Wynn, for example, enjoyed a villa in Las Vegas that cost the company $451,574 for the year.

Greg Brown, chief executive of Motorola Solutions, was honored by his employer with an endowed chair in the neuroscience department of his alma mater, Rutgers University. Brown didn’t receive the money directly: Motorola Solutions donated $1.5 million to the university, where he is a trustee, but the position will be named for him.

In a few cases, top executives other than the corporate CEO also walked away with some swag.

At the HollyFrontier Corp., which is based in Dallas and is one of the nation’s largest oil refiners, membership has its privileges. The company spent $238,907 in 2013 on club initiation fees and monthly membership dues for two top executives, Douglas Aron, the chief financial officer, and David Lamp, the chief operating officer.

Jeffrey Evenson, a senior vice president hired at Corning in 2011, received $400,000 to help make up for the drop in value on his house in the Boston area when he sold it and moved to upstate New York to take the job.

Roger Ailes, chairman and chief executive of Fox News, billed $155,091 in personal corporate car use to his employer, News Corp., even as his boss, Rupert Murdoch, made $361,013 worth of personal trips on the company jet.

Spending on perks and other compensation declined sharply in the recession’s wake, according to Equilar, with the median package dropping sharply from 2007 to 2010. But corporate compensation experts say nice extras have a way of coming back whenever the economy shows signs of life and the stock market turns higher. Companies put a bit more money into perks in 2011 — a median of $270,101 — and the trend gained steam in 2012.

Even though unemployment remains high by historical standards and the top 1 percent of earners face higher taxes, executives and boards may figure that the popular outrage that followed the financial crisis and the recession has cooled a bit.

Private jets necessary?

“When the economy improves and companies are doing better, the view is that shareholders will look the other way,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “I think it’s offensive,” Elson added. “The corporate aircraft is for a business purpose; it’s a business tool. You don’t take the company car to Disneyland with your kids, so why would you use a corporate jet for personal use?”

In many cases, the official answer to that question is security, according to the proxies and other filings that companies provide shareholders and regulators. Chief executives in many instances, including that of Frissora at Hertz and Rupert Murdoch at News Corp., are actually required to take private transportation, even on personal holidays, because companies argue that it is prudent for their safety.

Another justification is that the private jet helps CEOs make the most of their valuable time.

Elson doesn’t buy either argument about personal use of a jet.

“I find the security argument tough to swallow,” he said. “Airports are among the safest places on earth these days.” In any case, he said, “you’re paid so much money you can charter a plane if necessary.”

Private jets, club dues and housing subsidies get under the skin of the ordinary shareholder, says David Larcker, a professor at the Stanford Graduate School of Business and an expert on corporate governance. There is something about the specific details of life at the top, he says, that leads to both envy and outrage.

But in some cases, he noted, the perks are a sign of a deeper problem.

“It’s usually a small bit of money, but it provides an insight into what’s going on,” Larcker said. “If this is out of whack, it makes you wonder about the desirability of other parts of the pay package.”

Which brings us to the case of Ellison, Oracle’s chief. His pay packages have earned him a place among the top three highest-paid CEOs for six years in a row. But in some ways, 2012 was special for him.

For a start, while fewer than half his shareholders approved his pay package in the annual say-on-pay vote, he managed to earn more than $96 million for the year.

Nearly all of that was in stock, but that’s significantly more than twice as much as the next-highest-paid CEO in this year’s survey and nearly $20 million more than what he earned in 2011.

And the raise came despite a 22 percent drop in Oracle’s stock in fiscal 2012.

Given all that, did Ellison really need the company to spend more than $1.5 million on his security retinue? He pays out of pocket for the installation and maintenance of home security systems; Oracle covers the cost of the security personnel.

“He doesn’t care what shareholders think,” said Johnson, the compensation consultant. “He’s one of the richest guys in the world, and he has the company pay for his bodyguards. I don’t think he’s going to change.” Oracle declined to comment.

Shareholders may be displeased, but Ellison has much to console himself with. He owns nearly a quarter of Oracle, the software giant he founded, giving him a net worth of more than $40 billion, and Oracle’s shares have been doing better recently. Plus, he can always fly off to Lanai, the Hawaiian island he acquired last year. (Ellison, to his credit, doesn’t bill the company for personal jet travel.)