Wanting a half-full glass from Lockheed Martin…
Yesterday was a big day for Lockheed Martin (LMT). Besides news that it had established the Executive Office of the Chairman (to enhance responsiveness), shareholders learned that the board approved a 4th quarter dividend of $1.00 per share and a stock repurchase of up to $2.5 billion. Also announced: an infrastructure upgrade so that the Defense Department can communicate better with other agencies and coalition partners.
But the company waited until 5:26 pm last night to trot out this one-paragraph 8-K. Here’s a snip from yesterday’s filing:
“On September 22, 2011, the Board of Directors of Lockheed Martin Corporation,… decided to discontinue the practice of providing elected officers with tax assistance (i.e., tax gross-ups), effective January 1, 2012, for personal use of corporate aircraft and taxable business association dues. The Corporation plans to continue to provide tax assistance to elected officers for security, relocation assistance, and travel expenses for family members accompanying officers on certain business travel, because the Board believes that these actions have a business purpose and benefit to the Corporation.”
So gross-ups for personal jet travel are out, presumably because they don’t really “have a business purpose and benefit to the Corporation.” But gross-ups to cover the cost of a board member’s wife flying on the corporate jet are A-OK? We’ve long taken the position that gross-ups are gross, so it’s great to see yet another company eliminating them, even if it’s just a partial elimination. Still, this kind of logic made us wonder how the company justified paying tax gross-ups in the first place.
The answers were in the March 11, 2011 proxy: For “security reasons,” the board required its Chairman/CEO, Robert Stevens, and its President/Chief Operating Office, Christopher Kubasik, to use the corporate plane for personal travel. Another reference (which applies to the tax gross-ups paid on all executive perks, not just personal use of the corporate planes) stated:
“The items for which we provide tax assistance serve a business purpose and the associated tax liability imposed on the executive would not have been incurred had they not been required for business reasons. In 2010, the aggregate amount of tax assistance provided to all five NEOs was approximately $650,000.”
So there was a business purpose, but now there’s not anymore?
Digging deeper, we found that the only amount disclosed for this perk in FY 2010 was for Kubasik, whose personal use of the plane was valued at $121,026 – a number that seemed large enough to us until other numbers eclipsed it (e.g., in the same year, Lockheed Martin spent nearly $1.3 million on security for Stevens and almost $189,000 for Kubasik’s; it also paid more than $412,000 in relocation assistance for Executive Vice President Marillyn Hewson).
In the footnoted archives, we found a post from December, 2006 about Lockheed Martin’s decision to stop paying for perks like country club initiation and membership fees, Town Cars for local transportation, tickets to sporting and entertainment events, and tax preparation and financial planning services for top executives. At the time, the company gave the executives raises to offset the loss of the perks. And yet, this year’s proxy discloses that some of those perks are back: “…the Corporation made available event tickets and a company-provided car and driver for personal commuting to some of the NEOs, but required the NEOs to reimburse the Corporation for the incremental cost of such items.”
We try to take a “glass half-full” attitude toward companies when they take steps – even small ones – that demonstrate an awareness that a company’s bank account is not the executives’ personal piggy bank. Yet, all too often, there’s a lot of room for improvement. Sigh.
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