Many in the business world contend that corporate jets (or a fractional ownership through a company like NetJets) are more efficient and cost-effective than having a busy CEO doff tasseled loafers, navigate security, and then brush elbows with the hoi polloi while waiting to board. We won’t quibble with that point generally today.
However, we remain unconvinced when it comes to executives piling their families into the company jet for a little sun in Cabo or a weekend skiing in Gstaad. How does that benefit shareholders, and why should they foot the bill for that?
During the past few years, the trend has been for companies either to eliminate or limit how much their executives can use the company jet for personal travel. But there are still some high flyers out there, and proxy season is a good time to look at some of the executives who’ve racked up a lot of personal flights on the company’s plane at the shareholders’ expense.
A couple of weeks ago we reported one of the highest numbers we’ve seen so far this year: That belongs to the CEO/president at Sears Holdings Corporation (SHLD), Louis J. D’Ambrosio, who took $793,224 worth of personal flights (and nearly $29,000 more in related perks and tax gross-ups) commuting from his home in Philadelphia to Sears’ offices, located in the greater Chicago area. That might seem like a work expense, but the I.R.S. thinks otherwise, since jetting into work doesn’t meet either the de minimis test or fit within the definition of qualified transportation benefits.
Others with a penchant for taking the company jet for personal flights rather than digging into their own pockets and scouring for deals on Expedia include American Electric Power Co., Inc. (AEP), where Chairman and former CEO, Michael G. Morris, took $488,806 worth of personal flights, according to the March 14 proxy, which notes that:
“While corporate aircraft provide enhanced security, travel flexibility and reduced travel time, which benefits the Company, the HR Committee is also sensitive to concerns regarding the expense of corporate aircraft and the public perception regarding personal use of such aircraft. Accordingly, effective October 2009, the HR Committee generally prohibited personal use of corporate aircraft that has an incremental cost to the Company, except for Mr. Morris, who negotiated the use of corporate aircraft for personal travel as part of his employment agreement.”
Duke Energy Corporation (DUK) gave its Chairman, President, and CEO, James E. Rogers, $406,017 worth of personal flights in 2011, while Boeing’s (BA) Chairman, President, and CEO W. James McNerney, Jr. took $324,502 worth of personal flights. (He also cost shareholders another $80,633 “for use of company aircraft associated with attendance at outside board meetings.”) And at Select Medical Holdings Corporation (SEM), president and Chief Operating Officer, Patricia A. Rice took $285,231 worth of personal flights.
Sadly, we could go on for several more blog posts with reports of highly-paid executives who are using their company’s jets in this way. And yet – not to deify Warren Buffett any more than he already is, but rather to point out that some executives do make more conscientious and fiscally responsible choices – we’ll end on a snippet from Berkshire Hathaway’s March 16 proxy:
“Mr. Buffett and Mr. Munger do not use Company cars or belong to clubs to which the Company pays dues. It should also be noted that neither Mr. Buffett nor Mr. Munger utilizes corporate-owned aircraft for personal use. Each of them is personally a fractional NetJets owner, paying standard rates, and they use Berkshire-owned aircraft for business purposes only.”
Over on footnotedPro, we scour corporate disclosures to find warning signs and hidden opportunities before the rest of the market. To see what you’re missing in the filings, or to inquire about a trial subscription, please contact us.