Paying Bonuses to Corporate Executives to Curtail Perks?

Imagine having unlimited use of a company owned, maintained and insured car as part of your compensation package. What would you think if the company then decided to curtail your personal use of the vehicle by 75% in order to save the corporation $3,000/year in related expenses and also offered to cut you a check for $14,100 for the inconvenience? As a dedicated team player -- especially in procurement -- you'd hopefully say: "Where's the savings and what's the point?"

That's pretty much what Abercrombie & Fitch decided to do -- albeit on a far larger scale -- regarding their CEO's personal use of the corporate jet. Today's Fox News reports that Michael Jeffries "was entitled to unlimited personal use [and] from 2006 to 2008, he booked an average of about $850,000 a year worth of personal travel on the corporate jet." And now, "In exchange for agreeing to ... limit his company-covered personal use of the corporate jet to $200,000 per year ... Jeffries will receive a lump-sum payment of $4 million."

Fox also states that Abercrombie's "sales fell to $2.9 billion for the year end Jan. 30, 2010, down 16 percent from 2009. To boost sales at the start of this year, Abercrombie resorted to deep discounting." Irv Becker, national practice leader of executive compensation with Hay Group is quoted saying "There will likely be a negative reaction to [Jeffries new deal] from institutional shareholders." Let's hope so.

William Busch

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