Friday Rant: The Corporate Jet — Perk & Business Tool … Why Hide It?

Commercial air travel is not fun. But more importantly, it typically requires more ground time -- early arrival, baggage check and claim, TSB security, flight delays, take off and gate clearances -- than actual flight time. So if a top 500 CEO is compensated at the low median of say $6 million annually and works 16 hour days, it's clearly not astute to pay her $1,450/hr or more to waste time with the masses. Enter, the not so rarefied air of private jet transportation with its commensurate efficiency, convenience and, according to yesterday's WSJ, potential for frequent personal abuse.

The Journal reviewed FAA flight records and "found that dozens of jets operated by publicly traded corporations made 30% or more of their trips to or from resort destinations, sometimes more than 50%. Often, these were places where their top executives own homes. The review covered nearly every jet flight in the U.S. over the four-year period from 2007 to 2010." Sounds like a genuine muckraker, but let's look more closely.

According to the SEC website on Executive Compensation, "The federal securities laws require clear, concise and understandable disclosure about compensation paid to CEOs, CFOs and certain other high-ranking executive officers of public companies ... This disclosure includes, among other things, information about ... employment contracts and related arrangements." And most relevant to this discussion, "the Commission's jurisdiction extends to disclosure -- making sure that the investing public is provided with full and fair disclosure of material information on which to base informed investment and voting decisions ... The decision by a company regarding the amount and type of compensation to give an executive officer is a business decision and is not within the jurisdiction of the Commission."

The line between leisure vs. business use of a corporate jet is a business decision. Some corporations prohibit personal use or demand full reimbursement. Others wish to maximize their executive's productivity and acknowledge that, in reality, they work at least 20/6 no matter where they are. Top ranking execs are paid stratospheric compensation to run major corporations. Except for a philanthropic few, do we really expect them to not buy and visit grand vacation homes? Or travel with their families to exotic places. Who covers the cost of the jet is between the exec, their board and, to a lesser extent, the shareholders. And here's the rub.

The Journal states that "Under stiffer SEC rules released in 2006, the cost of personal travel on company planes generally must be disclosed if it exceeds $25,000 per year or more than 10% of the cost of all perks. Commuting flights -- from, say, a vacation home to headquarters -- count as personal travel. Disclosed cost calculations should be those associated with the flights themselves, such as fuel, landing fees and the crew's hotel bills. Not counted are fixed costs, such as the price of the plane and crew salaries." Fair enough. Many companies transparently comply with these rules of disclosure and the Journal even cited one case of a corporation that reported slightly higher personal use than their investigation revealed.

Then there are others -- many others -- that appear to obfuscate. The article quotes Brink Dickerson, an attorney at Troutman Sanders LLP in Atlanta saying "Personal use of corporate aircraft is still under-reported ... He says people will come up to him after speeches on the topic to describe how they have been reporting personal travel as business travel. They say, 'This is how we do it, is this OK?' Mr. Dickerson believes it is appropriate for executives to take personal trips on company planes, but companies should be reporting such use rather than 'disguising' it as business travel."

Alas, this article and The Wall Street Journal's review of FAA flight records is mandatory reading for shareholders. If a corporation under reports executive compensation in their annual proxy statement, you can bet it doesn't stop there.

As for me, I'm far more interested in corporate yachts. Lisa & Jason, can we get one of those? Much cheaper than a jet, and I'll captain for free! 😉

- William Busch

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