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May 19

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How Much Are Outrageous Executive Perks Costing You?

Through proxy statements, shareholders get a one-per-year glimpse at pay and perks of top executives.  In addition to multimillion dollar pay packages, executives  sometime receive outrageous perks.  These funds are being paid for with shareholder money.  Based on a compilation created by Kiplinger, here is a list of  some of the more outrageous perks given to U.S. executives:

  1. $2 Million Birthday Party – Tyco International’s Dennis Kozlowski threw a week long Roman themed party on the island of Sardinia for his second wife’s 40thbirthday, just two months after they wed.  Tyco paid half of the $2 million tab.
  2. Post-Mortem Non-Compete – Shaw Group will pay its CEO James Bernhard, or his heirs, $15 million (plus interest) when he leaves for his promise not to compete even if he can’t compete because he is dead.
  3. Housekeeping – Tyson Foods’ Don Tyson, who has retired from the company, has Tyson company employees clean five different homes of his family and friends at a cost of $203,675 a year.  In addition, the company spent $84,000 for lawn-maintenance costs for the same five homes.
  4. Flying School Bus – Edward Mueller’s employment agreement with Quest Communication International gave his wife and daughter the right to use the company jet to commute to and from California, where his daughter was still in school, at an annual cost of $281,182.
  5. Tax-Free California – Occidental Petroleum’s Ray Irani was apparently horrified by California’s high income tax rate to the point where Irani’s employment deal required the company to pay his state income tax bills.  Over six years, the company shelled out $5.8 million for Irani’s California tax bill.
  6. Flying Cash Cow – Steve Jobs of Apple works of a $1 annually.  However, the company gave him a Gulfstream V worth $90 million as a perk.  In addition, the company paid $1.1 million in flight-cost reimbursements for the company use of his plane.
  7. Super Security – Oracle pays $1.4 million annually to monitor Larry Ellison’s security system at his expansive northern California home.
  8. Box Seats ‘Till Death – General Electric’s Jack Welch received perks form the company in the multimillion dollar range, before and after his retirement from the company.  The perks included fresh flowers and a wait staff for his New York City apartment, floor-level seats for the Knicks, a sky box for Red Sox games, and VIP seating at the French Open.

Misuse of company money is becoming more and more prevalent.  For the big companies listed above, these perks may get lost in rounding, or cost each shareholder only a fraction of a penny. 

However, perks also affect smaller companies, who do not not have the advantage of disclosure and auditors similar to what happens at these larger firms.  For a small company investor, excess and undisclosed perquisites can be a significant portion of the earnings that the smaller company might have otherwise accomplished.  If you have an interest in a company’s profits, it is important to audit the company’s financials to catch non-business related expenditures, and recoup your share of these inappropriate expenditures.  Most people do not perform such investigations because they do not know how to do so, or it costs too much to hire a forensic accountant.  However, it is best to have a trained forensic accountant help you with such investigation, as they have the knowledge and experience to quickly identify, analyze, and summarize inappropriate expenditures. 

When drafting shareholder agreements, include an audit provision which shifts the cost of the audit if inappropriate expenditures are discovered.

About the author

Anand Khemlani

I am a founding member of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), a Certified Fraud Examiner (CFE) and am a licensed Real Estate Broker. I regularly serve as an expert witness involving results of my forensic accounting assignments and damage analyses. My resume is available on Fulcrum's website

Permanent link to this article: http://betweenthenumbers.net/2011/05/how-much-are-outrageous-executive-perks-costing-you/

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