An inverse relationship at J.C. Penney

Earlier this week, beleaguered retailer JC Penney Co, filed its proxy statement. Given some of the high-profile comings and goings at the company over the past few years, we’ve paid pretty close attention to their proxy and this year’s version didn’t disappoint. For the past few years, the company has at least one — and sometimes two — executives who have received hefty severance packages for relatively short stints when whatever magic potion they were pedaling failed to turn the company around.

This year’s proxy didn’t disappoint: the company disclosed for the first time that former CFO Kenneth Hannah, who occupied the CFO spot for less than two years, collected $2.3m in severance.

But far more interesting to us was the high-flying ways of former CEO Myron Ullman. As the filing helpfully points out in footnote 5 to the summary compensation table, Ullman spent $896,010 on personal use of the corporate jet in 2014. While that’s slightly less than the $913,488 spent in 2013, it’s also for less time, since Ullman was replaced on Nov. 1, 2014. It’s also more than twice as much as what former CEO Ron Johnson spent on personal travel during his last year at the helm.

The last time that Ullman was at the helm at JC Penney, his personal jet usage was $362,682, which means the 2014 figure is 1.5 times higher. As a general rule of thumb, when personal usage of the corporate jet begins to approach $1m, it should be a big red flag. Exhibit A? The $1.1m that former Abercrombie & Fitch CEO spent on his personal plane use in 2009. Keep in mind that it costs about $5,000 an hour to operate the typical corporate, so we’re talking about a lot of hours spent flying to various vacation spots. UPDATE: As disclosed in the proxy (and in prior proxies dating back to 2008), the company explains the hefty jet usage as being related to Ullman’s “physical condition that significantly limits his mobility”.

We won’t do it here, but just imagine if you will a simple graphic that plots Ullman’s personal jet usage and the company’s sagging stock price over the past five years. Talk about an inverse relationship!

Over a decade ago, NYU Professor David Yermack wrote this paper that talked about excessive corporate jet usage. That paper got a lot of attention at the time, especially from institutional investors. Yermack followed up in 2013 with another paper that said that airplane tailspotting could be a profitable trading strategy.

Even for cynics like us, it still seems odd to be talking about excessive personal jet usage in 2015.