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September 3, 2002


By PATRICIA V. RIVERA / The Dallas Morning News

Executive perks are losing mass appeal as federal regulators and legislators continue cracking down on questionable accounting practices.

The Sarbanes-Oxley Act, which was passed in July, outlawed corporate loans to executive officers, among other things. The corporate responsibility law, which applies only to public companies, also muddled the legality of other practices, such as the use of company credit cards. Securities regulators are still wading through it.

But the problem is not solely the legality of these fringe benefits. It’s that business leaders find it harder in these leaner times to justify benefits that could hurt the bottom line and perhaps even the company’s reputation.

“Executive perks were part of the heyday of the ’90s. But now that everyone is under such scrutiny, people look at this stuff and they don’t even want the appearance of impropriety,” said Michael P. Maslanka, an employment law attorney at Godwin Gruber PC in Dallas and editor of the Texas Employment Law Letter.

To be sure, benefit consultants feel confident that perks will survive as they have through numerous tax reforms over the last two decades. Yet companies are reassessing the types of perks offered and assuring that they fall within all guidelines.

“Companies are putting in provisions so that everyone understands that it’s all aboveboard. They want to make it clear that it’s not a sweetheart deal and that they’re not trying to enrich the executive at the expense of the shareholders,” Mr. Maslanka said. “Before they would maybe take a paragraph to make this point. Now they want many paragraphs.”

Executives understand the change in philosophy, said Jim Leverette, senior vice president at the Broadmoor Group, an executive search firm in Dallas. They are not as preoccupied with conspicuous consumption.

“People are coming back to a sense of what’s real. Many are saying, ‘If I can come in with a good company, and I feel I’m making a difference, and I’m making a decent living by the world’s standards, then that’s a good thing because there is uncertainty with the economy,” he said.

Experts suggest that leaders evaluating their executives’ benefits should:

  • Determine what is really a perk. If it helps the company make money, it’s probably not a perk; if only the senior manager benefits, then it’s probably a perk.
  • Be careful not to layer on too many fringe benefits. The total value of a perk should not make up more than 10 percent of the total compensation package. Perks do not include any type of stock option or compensations based on performance.
  • Make sure that company perks offer a tangible return on investment, as measured in a senior manager’s productivity. For instance, membership to executive airline club, which would allow a manager to work or conduct a meeting while traveling, may prove more beneficial than a country club membership.

Despite public perception – and exceptions that have grabbed headlines in recent months – extras such as corporate jets, chauffeur-driven luxury cars and memberships at exclusive country clubs have fallen by the wayside with changes in tax law during the 1980s and 1990s, said Steve Cross, practice leader at the Houston office of Mercer Human Resource Consulting.

Companies now are more likely to offer memberships to athletic clubs to help managers counter stress. Access to executive dining rooms also pays off for managers who regularly schedule business lunches.

“Benefits most useful are those that help executives better deal with their busy lives,” Mr. Cross said.

David Hofritcher, a principal at Buck Consultants in Chicago, prepares an annual Executive Perquisites report that looks at the prevalence of certain benefits.

He said all benefits and perks should be transparent. They should not encourage bad behavior.

“It’s important the executives also look at their own compensation package and scrutinize it. The emphasis should be pay for pay,” he said.

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