Perks unchecked for some Wall Street CEOs
Sunday, May 23, 2010
NEW YORK -- Some of the nation's biggest financial firms have increased the perks and benefits they pay their chief executives, despite the glaring spotlight from a public fed up with handsome bonuses at bailed-out Wall Street banks.
The lavish fringe benefits included country club dues, chauffeured drivers, personal financial planning services, home security systems and parking. Some increases were in perks that Obama administration officials consider among the most egregious, such as corporate aircrafts for personal travel.
J.P. Morgan Chase awarded its chairman and chief executive, Jamie Dimon, $91,000 in personal travel on the company jet in 2009, up from about $54,000 the previous year. His total perks increased 19 percent, to $266,000. Dimon, along with Goldman Sachs chief executive Lloyd Blankfein and McLean-based Capital One chief executive Richard Fairbank, also received sharply higher perks related to personal and home security.
"Marie Antoinette could fit into this crowd without missing a beat," said Nell Minow, co-founder of the Corporate Library, which found in recent studies of several thousand U.S. companies that more chief executives received club memberships than a year earlier, and companies paid more to cover executives' personal use of corporate planes. "Many people would think the solution would be not to be so provocative of unrest and unhappiness, but no, they're saying, 'Go ahead and do that, just build bigger walls around your house.' "
A review of the 29 largest publicly traded financial companies that received federal aid found that nearly one in three increased fringe benefits for their chief executives. Those raises contrast with the belt-tightening that many Americans have experienced during the recession.
They also occurred as 20 of the firms cut perks last year, after an increase in 2008, according to figures in corporate securities filings provided by Equilar, a compensation data services firm.
Last year, executives at the firms surveyed received perks and benefits worth more than $140,000 on average, compared with $380,000 in 2008. Individually, chief executives at nine of the banks received total fringe benefits worth more than the previous year. The analysis does not include relocation costs and related taxes, typically one-time fees that can skew year-over-year comparisons. All of the banks were operating with taxpayer funding for at least part of last year, although 14 had returned the money by year's end.
The overall decline took place in part because of strict limits on perks imposed by the Obama administration for 2009 at companies receiving the most assistance. For example, at Ally Financial, the financing arm of General Motors formerly known as GMAC Financial Services, chief executive Michael A. Carpenter received perks worth just $35, compared with the $4.8 million awarded to his predecessor, Alvaro G. De Molina, in 2008.
While the sweeteners translate to a drop in the pool of money that could have gone to shareholders or been reinvested in the business, activist stockholders and corporate governance groups argue that they are symptomatic of a larger problem.
"It's a very powerful indicator of something we are learning to care about more and more, and that is the board's ability to say no to the CEO," Minow said. "If it can't say no to the CEO on a club membership, then how can we expect them to say no to an acquisition or some other decision that is not in the interest of shareholders? We have found over and over again that it is a leading indicator of a board that is not providing effective oversight."
Companies say that perks are useful in attracting talent and that they benefit shareholders as well because private jets and chauffeured drivers help keep busy and high-profile chief executives safer and more efficient.
"Security expenditures could be considered more of an issue about risk than an executive perk," Capital One spokeswoman Tatiana Stead said in an e-mail, adding that the company for years has covered Fairbank's security expenses, which can fluctuate. "As founder, chairman, and CEO, Rich Fairbank is critical to our business and this expenditure has never been a significant annual expense."
Representatives for Goldman and J.P. Morgan Chase declined to comment.
While perks have long been a focus of criticism by corporate governance-minded activists, the benefits -- about $4 million in total among the chief executives of the 29 financial firms -- are drawing increased scrutiny in today's tough economy and interest in Washington to clamp down on excessive pay.
Both the House and Senate versions of the financial regulation overhaul bill include provisions that would give shareholders an advisory, up-or-down vote on executive compensation packages. The legislation also includes measures that would give stockowners more say in electing board directors.
Meanwhile, Kenneth R. Feinberg, President Obama's pay czar, who ruled last year that perks at firms receiving the most taxpayer assistance should not exceed $25,000 per executive, is reviewing pay practices at the more than 400 financial institutions that received Troubled Assets Relief Program funds. The principles guiding his review, to be made public within weeks, are similar to those he used with the most troubled firms, according to people familiar with the matter.
Although Feinberg does not have authority to impose changes at the broader group of firms receiving TARP money, the powers granted to Feinberg through legislation allow him to review compensation, and "where appropriate, negotiate appropriate reimbursements."
"The significance is greater than the dollar value alone," said Brandon Rees, deputy director of AFL-CIO's office of investment. "It illustrates the power of CEOs to dictate every term in their compensation agreement . . . If the CEO wants to go to Aspen, or the South of France for his vacation, and wants to fly on the corporate jet, well then, he should expend the vast sums of compensation shareholders have given him to do that."