washingtonpost.com > Business > Local Business

For Many Top Executives, It's Ask and You Shall Receive

By David S. Hilzenrath
Washington Post Staff Writer
Monday, June 27, 2005

Mired in bankruptcy reorganization, W.R. Grace & Co. agreed this year to pay newly installed chief executive Alfred E. Festa a $1.75 million "Chapter 11 emergence bonus" -- whether or not the chemical company emerges from Chapter 11, according to a report filed with the Securities and Exchange Commission.

General Dynamics Corp. promised last year that, if chairman and chief executive Nicholas D. Chabraja stays at the company through April 2008, he will be allowed to use corporate aircraft for up to 500 hours during his first decade of retirement. That would be on top of annual retirement pay projected at $2.1 million based on his salary and bonus last year, the defense contractor said in an SEC filing.

Coventry Health Care Inc., an HMO company, gave chairman and former chief executive Allen F. Wise a deal that includes as much as $12,000 for legal, tax and financial planning, an unspecified automobile allowance, 75 hours of personal airplane use and a "tax equalization bonus" to ensure that those other benefits entail "no net cost to him," according to a regulatory filing.

After the company signed that agreement, it reimbursed Wise for the legal fees he incurred negotiating it.

Despite increased scrutiny of executive compensation after a series of corporate scandals, the executive suite at many companies remains a charmed place in which boards not only reward executives with rich salaries and bonuses but also help them with such routine expenses as commuting to work and preparing their taxes.

They get signing bonuses for taking the job, retention bonuses for staying on the job and a continuing stream of retirement perks to ease them out of the job. They receive stock options to reward them if the stock price rises, and if the stock price falls, they can sometimes renegotiate the terms.

In the rarefied world of top executives, "the board basically gives the executive whatever he or she has the chutzpah to ask for," said Rakesh Khurana, an associate professor at Harvard Business School who teaches a course on corporate governance.

After the highly publicized accounting scandals at Enron Corp. and WorldCom Inc., "there was a period around 2001, 2002 when boards felt quite constrained in terms of executive pay and executive perks," said Randall Thomas, a law professor at Vanderbilt University who studies executive compensation. Now, he said, "it's not as hot a political topic," and boards feel free to give executives more.

None of the executives contacted for this article agreed to be interviewed. Some did not respond to interview requests.

Thomas, however, said top executives "are so sought after that they have enormous bargaining power," and "they're negotiating against the backdrop of what the market usually gives people in this position."

That leaves open the question: Why do highly paid executives even ask for perks they could easily afford?

"It's a sense of entitlement: I'm entitled to it. I'm putting so much time into the company," said William W. George, former chief executive of Medtronic Inc. and a member of the boards of companies including Goldman Sachs and Exxon Mobil. "Executives make a lot of money, so they ought to be able to pay for those things themselves. . . . How far do you want to go? Groceries?"


CONTINUED     1              >

© 2005 The Washington Post Company