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Once normal, executive perks raising hackles

Private jets are de rigueur no more. And senior executives are also more likely to see more modest pay and exit packages, or so-called golden parachutes, and the end of other perks boards used to throw their way. Private jets are de rigueur no more. And senior executives are also more likely to see more modest pay and exit packages, or so-called golden parachutes, and the end of other perks boards used to throw their way. (Cessna Corp.)
By Beth Healy
Globe Staff / March 8, 2009
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Corporate America is losing its taste for flying in style: Citizens Bank has just put both of its jets up for sale.

But in the post-bailout era, even small-time perks - like company cars and financial planning services - are probably on the way out for multimillionaire executives.

Whether it's home security or a security detail on personal travel for State Street Corp. chief executive Ronald Logue ($38,260), club memberships for Sovereign Bank executives (as much as $11,569), or retired Bank of America executive Chad Gifford's $1 million in annual private jet travel, perquisites that used to be the norm in corner offices are looking unseemly these days to corporate compensation committees.

"Most perks are an idea whose time is past," said Ted Buyniski, a senior vice president at Radford Surveys + Consulting in Southborough, who advises companies on compensation matters. "There's going to be a shakeout. I think it's long overdue." He expects to see many of these perks phased out in 2009 and 2010.

At one large high-technology company where Buyniski consults, it was clear the mood had already shifted by last summer. At a meeting with the compensation committee, the company's chief executive mentioned that the lease on his company car was coming due, Buyniski recalls. It was a moment of utter tone deafness, he said. The chairman of the compensation committee responded, "You make enough money to buy your own car."

As bankers are being called before Congress - and admonished to show greater fiscal restraint amid multibillion dollar taxpayer bailouts - many companies are preparing for leaner compensation packages. Not only are senior executives more frequently traveling on commercial flights, but they are likely to see more modest pay and exit packages, or so-called golden parachutes, and the end of the generous freebies that boards of directors used to throw their way.

Executive perks show up in annual proxy statements - regulatory filings that divulge the pay and benefits of companies' highest-paid employees. Some of the items listed look like small change in the context of giant bonuses and stock options. But it's the nickel-and-diming of the shareholders that directors can't stomach this year, compensation consultants and recruiters say. Some of the examples cited here are from 2007, the latest available; disclosures for the financially ugly 2008 have just started to come out. A sampling:

At State Street, the Boston financial services giant, vice chairman Joseph C. Antonellis received tickets to sports events worth $1,450 in 2007 - part of his total compensation of nearly $9 million.

Together, State Street's three top executives got company cars and security worth nearly $200,000 in 2007.

Sovereign Bancorp's former chief executive, Joseph P. Campanelli, who received more than $4.4 million in total pay in 2007, had his $49,119 home security system paid for by shareholders.

Chad Gifford, who sold FleetBoston Financial to Bank of America and retired in 2005, received not only a multimillion dollar pay package and jet privileges but $626,000 in tax "gross-up" payments over the past two years to cover a change in taxes he has to pay on the jet benefit.

A State Street spokeswoman declined to say whether the same perks were likely to appear in the company's 2008 filing, due out soon. She said benefits like $3,000 executive health screenings were done "for efficiency's sake" and that financial advisory services and security were common. Bank of America has said that Gifford's pay and perks were approved by the board. Sovereign spokesman Andrew Gully said, "I cannot address specific security issues, except to say that it was appropriate in that instance."

It's a particularly touchy time for corporate spending that used to go virtually unnoticed.

Bank of America, which has received $45 billion in government bailout funds, is selling off three corporate jets and the Merrill Lynch & Co. helicopter. After taking heated criticism for allowing $3.6 billion in bonus payouts to Merrill executives at the end of 2008, the company last week said it paid no bonuses to bank executives last year and cut chief executive Kenneth Lewis's pay by 60 percent, to about $10 million.

Frank Glassner, chief executive of Veritas Executive Compensation Consultants in San Francisco, said that for the first time in memory, investors will see executive pay decline this year. In some cases, as with banks that have received government funds, it's because top executives are barred from receiving pay over $500,000. In many others, he said, it's because companies have lost so much market value, and have shrunk so much, that pay packages in turn need to be frozen, or cut.

And when it comes to perks, Glassner said, directors are reacting to the anger among shareholders and others in the market over what's perceived as lavish compensation for poor performance.

In the current environment, he said, handing club fees and big car allowances to executives will only anger investors and other stakeholders. "It's almost like putting on a red flannel suit and running around in a field of angry bulls," Glassner said.

Perks have boomed since the 1980s, because they often didn't cost companies much and sometimes could be tax write-offs "as long as they are reasonable, ordinary, and necessary," said Laura J. Kenney, a senior manager in Grant Thornton's Boston tax practice.

But some spending had gotten out of hand.

Merrill's former chief, John Thain, has said he will reimburse the company for a $1 million office renovation. And Wells Fargo & Co., which has received $25 billion in government bailout money, canceled a Las Vegas trip for a number of employees to avoid public criticism. At the troubled Royal Bank of Scotland - parent of Citizens Financial Group, New England's second-largest bank group - the former chief executive's luxury jet was put up for sale.

Citizens spokeswoman Barbara Cottam said the bank is selling its two jets to cut costs. The company lost $929 million in 2008. However, as a foreign-owned bank, Citizens is not receiving US government money, but its parent, the Royal, got substantial funds from the British government.

Private jets aren't likely to disappear from the scene altogether, consultants say. At State Street, for example, the majority of travel is done on commercial airlines, spokeswoman Arlene Roberts said. The company doesn't own jets but hires them from an outside firm, particularly when top executives are making stops in multiple cities, she said. State Street has received $2 billion in the federal bailout program.

Beth Healy can be reached at bhealy@globe.com.

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