Friday, April 27, 2007

Non-Employee Directors Pig-Out on Corporate Perks

Ram: “Sheep do not play with pigs.”
Wilbur: “Why not?”
Ram: “Oh, it's a matter of status. Sheep, for instance, are highly regarded by Zuckerman, because we furnish him with good quality wool. With pigs, on the other hand, it's just a matter of time.”
Wilbur: “Time to what?”
Ram: “Till you're fat enough to kill.”
Wilbur: “What did you say?”
Ram: “Oh, everybody knows it. In the fall, you'll be turned into smoked bacon and ham. Just as soon as cold weather sets in, they'll kill you.” - Charlotte’s Web (E.B. White)

In 2006, the average CEO of a Standard & Poor's 500 company received $14.78 million in total compensation, according to a preliminary analysis by The Corporate Library. This represents a 9.4 percent increase in CEO pay over 2005.

It is worth noting, too, that median weekly earnings for the nation’s 105.9 million full-time wage and salary workers were $693 in the first quarter of 2007.

This being proxy season, everyone from legislators in Washington to shareholders sitting on their porch stoops in Kansas gets (i) to read how generous the named executive officers (NEOs) compensation packages were at their favorite publicly traded Companies in fiscal 2006; (ii) to see how much the NEOs picked up in perks, too—personal use of the corporate jet, club membership fees, housing allowances, home security systems, etc.

It is useful to remind our readers that—flying under the radar—the Boards of directors—who are responsible for setting NEO pay (and perquisites)—are lavished with perks of their own, too:

  • Directors at American Standard Companies (ASD-$56.33), a provider of air conditioning, bath and kitchen products, earn compensation in excess of $200,000. In addition, directors are entitled to receive company products at no cost in connection with their service on the Board.
  • AirTran Holdings (AAI-$11.61), one of the country's largest low-fare airlines, serving 56 U.S. cities, gives each outside director travel privileges, which allows the director and his or her immediate family members to travel on AirTran Airways on a complementary basis.
  • Outside directors at CBS Corporation (CBS-$32.05) earn more than $200,000 in retainer and meeting fees. The mass media company, with operations in television, radio, outdoor, and publishing, believes it is in its best interest for directors to participate in certain Company events and meet with management, customers, talent and others important to the Company, in order for them to experience the Company’s products, services and entertainment offerings. An AFC championship game, the U.S. Open Tennis Championships, Apple's iTunes Music Store downloads, boxing, and concerts—where do we sign up?
  • In addition to annual stock awards in excess of $150,000—and compensation packages that can top $300,000, UST (UST-$58.28), a purveyor of smokeless tobacco products (Copenhagen, Skoal) and wines (Chateau Ste. Michelle, Columbia Crest) treats each non-employee director to medical benefits, a retirement pension, and an annual wine allowance of up to $5,000 to foster use of the Company’s wine products.
  • Non-employee directors at golf club maker Adams Golf (ADGO-$1.95) are entitled to receive, at no charge, up to $1,000 of Adams Golf products (Ovation Fairway woods and drivers; Redline RPM drivers and fairway woods; and, the Tom Watson signature series of wedges) for promotional purposes.
  • Auto retailer Asbury Automotive Group (ABG-$29.57) doles out keys to any car on its lots to its non-employee directors.
  • In addition to compensation that can top $200,000 per annum, outside directors at specialty apparel retailer The Gap (GPS-$18.37) and their immediate families are eligible to receive discounts on merchandise in accordance with Gap’s corporate employee merchandise discount policy. We thought that they were independent, non-employees?
  • Each non-employee director at Red Robin Gourmet Burgers (RRGB-$41.28) is entitled to receive complementary food and beverages at the Company’s restaurants. We wonder if they leave the tip in cash—or tell the staff to ‘put it on their tab?’
  • As part of their ‘continuing education’ each director who is not an employee of Anheuser-Busch (BUD-$50.60) is encouraged to visit Company facilities, and the beer brewer will pay their travel and accommodation expenses—spouses, too. We suspect that the yearning for knowledge rises just in time for the summer vacation months—drinking a Michelob ULTRA Fruit Infused beer at SeaWorld or Busch Gardens.

Richard Fairbank/ Capital One Financial – $249.42 million, Terry Semel/ Yahoo! – $230.55 million, and Bruce Karatz/ KB Homes – $135.53 million—three examples (of many) where a bad year for shareholders in fiscal 2006 was a good one for CEO Compensation.

The 10Q Detective asks (rhetorically), how can directors on the Compensation Committee maintain their independence when they gorge at the same perk trough as NEOs? Perhaps directors are more independent in name than in fact?

As the ram said to Wilbur: “It’s only a matter of time ‘til you’re fat enough to be killed.”

Congress, shareholders, and the 10Q Detective are watching!

Editor David J. Phillips does not hold a financial interest in any of the stocks mentioned in this article. The 10Q Detective has a Full Disclosure policy.

1 comment:

Guru said...

This is nothing but organized mugging of an entire nation, while the citizens are busy buying Escalades with their home-equity loans on the way to being permanent mortgage-slaves.

I hope Homeland Security laws are extended to apply to all corporate corruption (aka overcompensation) cases. We will need the whole of Cuba to accomodate all the suspects who deserve to be treated as enemy combatants!