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In September, the board of ArcSight (ARST, news, msgs), a data-security software company, renegotiated the employment agreement of its chief, Robert Shaw, ahead of its initial public offering. ArcSight recently traded almost $1 below its $9 IPO price.
Shaw's contract contained the following goodies:
- An apartment in the San Francisco Bay Area near ArcSight's home office, plus utilities.
- Reimbursement for travel between the Bay Area and Shaw's homes in Montana and Cabo San Lucas, Mexico.
- A car for use in the Bay Area.
- Payment of the tax bill for all of the above items. Last year's bill was $220,000.
A recent filing from JetBlue Airways (JBLU, news, msgs) reveals that Chief Operating Officer Russ Chew, who joined the company in March 2007, gets a $12,000-a-month housing allowance. The company also pays the taxes on the allowance.
"Why should a company try to tailor compensation to the foibles of a particular executive?" asks shareholder activist John Chevedden. "All of this kind of presupposes that these people can't pay for these things out of their own pockets."
The numbers suggest they can:
- At Advance Auto Parts, Jackson earns a base salary and bonus of $2 million a year. He also gets 335,000 shares of restricted stock worth $11 million. He does share: He donated a $3 million signing bonus to create a pool of restricted stock that can be used to reward managers who wouldn't otherwise get stock incentives.
- ArcSight's Shaw collects annual pay of nearly $1 million, plus options.
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ArcSight representatives declined to comment, but the company says in filings that it designed Shaw's pay package so it would be similar to compensation levels at software companies of about the same size. ArcSight did stop paying yacht club fees for Shaw last fall, though it apparently raised his salary to offset the difference.
Advance Auto Parts responds that it already has six offices around the country and that opening one in Minneapolis will do more than help its new chief avoid relocating.
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Wall Street, give back the bonusesMoneyShow.com's Howard Gold says Wall Street is responsible for the current economic weakness, and the firms' "superstars" should repay shareholders for the billions they've lost.
"Minneapolis has allowed us to fill executive roles that historically have been open for months with proven leadership talent, and the feedback from shareholders has been very supportive," a spokeswoman says. Jackson, she says, "will be wherever the team needs him."
JetBlue, Wal-Mart and Hanmi Financial did not comment.
Perks should be linked to performance
Activists such as Chevedden say shareholders get cheated by perks like these because they aren't linked to performance. There's no incentive to work harder."Is this a good use of shareholder money? Of course not," Chevedden says.
Nell Minow of The Corporate Library agrees that companies should ask CEOs to make a list of everything they want and add up the costs. "Then, if they meet tough and meaningful performance goals, pay them that amount. There is no reason that the most financially successful people on Earth should have their luxuries subsidized," Minow says.
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Wall Street pay and the subprime crisisWilliam Cohan, a former Lazard Frères banker, and Dennis Kneale and Charlie Gasparino of CNBC discuss whether Wall Street compensation has contributed to companies' financial meltdowns.
She says companies that pay such perks will continue to face the wrath of shareholder activists such as Chevedden, who has filed "say on pay" proposals at several companies. Those proposals let shareholders cast a vote against pay packages. The votes are nonbinding but send a message to directors that such pay plans may cost them the support of shareholders.
Why does this stuff happen?
Corporate-governance experts say the perks continue to flow because managers are too close to board members, who are supposed to work on behalf of shareholders. "They play golf together. Their wives meet socially. It is the good ol' boy network," says Hodges.Daniel Pedrotty, a corporate-governance expert at the AFL-CIO Office of Investment, says directors need to be more independent. He says investors can lobby for change by:
- Supporting reform efforts that would require directors to be elected by majority votes. That would make it harder for management to stack boards.
- Backing reform efforts that would give investors more power to put their own candidates on boards.
- Voting against pay packages that seem egregious whenever there is a "say on pay" proposal at a company whose shares you own.
Want a little evidence that common sense can triumph? Cable giant Comcast (CMCSA, news, msgs) agreed in late December to pay founder and director Ralph Roberts for five years after his death. An uproar followed. This month the company reversed the decision.
At the time of publication, Michael Brush did not own or control shares of any companies mentioned in this column.
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