Research Finds Program Reductions, Prudence
The backlash against high levels of executive compensation that began with 2008’s economic downturn continued through 2009. The increase in media coverage and demand for accountability kept executive compensation at the forefront of public interest. With both shareholders and government officials calling for increased transparency, companies face growing pressure to justify the components of their executive compensation, especially their executive perquisites.
Due to the increased scrutiny, many companies amended their compensation policies in 2009. During 2009, over one third of the Fortune 100 companies included in this report eliminated at least one perquisite program.
Additionally, the median value of “All Other Compensation” of CEOs fell to its lowest level in the past five years. However, not every key perquisite decreased in prevalence; several key perquisites saw modest increases between 2008 and 2009.
Total Other Compensation
From 2008 to 2009, the median value of total other compensation for chief executives at Fortune 100 companies fell by 28.3 percent, dropping from $348,101 in 2008 to $249,632 in 2009. This reduction followed a 2.3 percent decrease in CEO total other compensation from 2007 to 2008. Overall, total other compensation decreased at an annualized rate of 7.4 percent from 2005 to 2009.
For fiscal year 2005, total other compensation is calculated as the sum of the “Other Annual Compensation” and “All Other Compensation” columns of the Summary Compensation Table. With the implementation of new SEC disclosure requirements for fiscal year 2006 and onwards, these two columns have been merged into a single “All Other Compensation” column.
Additional changes to perquisite disclosure thresholds make direct comparisons between years before and after fiscal 2006 difficult.
Retirement Benefits
In 2006, the SEC introduced a new column to the Summary Compensation Table, the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column. This column includes new data elements, as well as information that was previously disclosed in the “Other Compensation” columns of the old Summary Compensation Table.
The chart featured on the right illustrates the median value of the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column and its two core components for Fortune 100 chief executives in fiscal year 2009.
Financial Planning Services
In 2009, Fortune 100 CEOs received a median of $14,000 in financial planning and other professional services benefits, representing an increase of 3.5 percent over the 2008 median of $13,530. Looking back to fiscal years 2005, 2006 and 2007, Fortune 100 CEOs received $14,784, $17,156 and $15,575 respectively in financial planning and other professional services benefits.
These values principally consist of the cost of personal financial planning, but may also include other services such as tax preparation, corporate financial planning and personal legal services. Overall, financial planning benefits decreased in median value at an annualized rate of 1.4 percent from 2005 to 2009.
Financial Planning Services – Prevalence
The prevalence of Fortune 100 companies reporting financial planning and other professional services for their CEO decreased from 2008 to 2009, falling from 67.7 percent to 60.6 percent. From 2005 to 2006, the year-over-year prevalence jumped from 29.5 percent to 74.2 percent.
A key reason for this increase was the lowering of perquisite disclosure thresholds instituted by the SEC. This climb was followed by a decrease in prevalence to 62.1 percent in 2007 and a climb in prevalence to 67.7 percent in 2008.
The prevalence of Fortune 100 companies disclosing the actual value for financial planning benefits for their CEO in 2009 decreased from 38.5 percent in 2008 to 24.5 percent in 2009.
Flexible Perquisite Accounts
The median value of flexible perquisite accounts for Fortune 100 CEOs rose by 0.9 percent over the last year, climbing from $34,676 in 2008 to $35,000 in 2009. This rise differs with the overall annualized rate of decline of 2.4 percent from 2005 to 2009.
The prevalence of Fortune 100 companies disclosing a flexible perquisite account for their chief executive increased from 6.3 percent in 2008 to 7.4 percent in 2009. Previously, from 2007 to 2008, flexible perquisites saw a decline in prevalence from 8.4 percent to 6.3 percent.
Personal and Home Security
From 2008 to 2009, the median value of personal and home security perquisites for Fortune 100 chief executives fell by 39.1 percent, decreasing from $65,348 to $39,779. This fall in median value follows an increase of 123.1 percent from 2007 to 2008. The overall annualized rate of increase in median values for personal and home security perquisites is 1.7 percent from 2005 to 2009.
From 2005 to 2006, there was a substantial increase in the prevalence of security-related benefits, from 23.3 percent to 53.8 percent. This increase accompanied the new SEC disclosure rules which went into effect in 2006. These rules prompted companies to disclose security benefits that fell below the old disclosure threshold of $50,000.
Personal Use of Corporate Aircraft
In 2009, the median value of aircraft-related perquisites for Fortune 100 chief executives fell to $115,588. This amount represents a decrease of 18.3 percent over the 2008 median of $141,477. The median value of CEO aircraft perquisites rose from 2007 to 2008. Prior years of data show that the median value of aircraft-related perquisites has increased at an annualized rate of 1.6 percent from 2005 to 2009.
From 2008 to 2009, the prevalence of Fortune 100 companies reporting the personal use of corporate aircraft by CEOs fell from 79.2 percent to 66.0 percent.
Among the 5.3 percent of Fortune 100 companies that disclosed a dollar amount for tax reimbursement of aircraft use, the median gross-up was $10,576. This represents an increase of 6.4 percent from 2008, when the median gross-up was $9,936.
The values cited above for all years exclude the value of tax reimbursements (also known as “gross-ups”) associated with the personal use of corporate aircraft. In 2009, chief executives at 9.6 percent of Fortune 100 companies received tax reimbursements in connection with corporate aircraft use, a drop from 15.6 percent of Fortune 100 CEOs in 2008.
Other Perquisites
Other fairly common perquisites include tax reimbursements, automotive and parking expenses, club dues, annual physical exams, family and spousal travel on corporate aircraft, matching charitable contributions, and corporate housing.
Want to learn more? See the full report by visiting www.equilar.com, calling (650) 286-4512, or e-mailing info@equilar.com.