Executives Take Company Planes as if Their Own (New York Times)

1. Executives Take Company Planes as if Their Own(New York Times) Presented by Kevin Alspaugh

2. Leisure Trips and Vacations • Equilar, an independent compensation research firm, reviewed the 2005 government filings of the 100 largest public companies • 67 of the 100 companies reported using corporate jets for personal use • Actual cost of this number is underestimated; $10 million • The value of these trips count as personal income for executives, and some companies are paying the executives’ taxes on the trip • Richard H. Moore, treasurer of the state of North Carolina, recalls one executive saying, “You can fool around with my stock options all you want, but don’t fool around with my airplane.”

3. Why is This a Problem? • Until 2005, tax breaks were given for all travel on corporate jets • Neither executives nor companies were paying taxes • Example: Richard D. Parsons, chairman and chief executive of Time Warner, owns a vineyard in Tuscany, Italy. This could cost between $60,000 and $170,000 (based off of Conklin & de Decker Aviation Information). • Before 2005, the company could write off the full cost for a tax savings of nearly $42,500 (with a 25% corporate tax rate). • After 2005, Richard Parson’s income from trip only amounts to $2,800 (based off of a 14 to 21 cent/mile and landing fee).

4. What Next? • Shareholders end up picking up the tab for the difference between the $42,500 former tax savings and $2,800. • When shareholders pay for the differences, then the company has dissatisfied shareholders. There isn’t as much of a ROI. • Critics suggest using charter rates for income purposes, therefore, allowing executives to pay a more market-like rate on taxes. • Charles M. Elson, director of Weinberg Center for Corporate Governance at University of Delaware, says, “We pay them enough so that if they need to use private aircraft, let them charter it.”

5. Other Uses • Executives’ families are sometimes allowed to use corporate jets (depending on the company) • Retired executives are even allowed use of aircraft • Example: Bank of America allows retired exec to use aircraft for 120 hours for the next 5 years • Robert M. Brown, associate chief counsel at the IRS, says companies are allowed to write off the full cost of any trip for a retired executive so long as they leave the board and own less than 10% of the company’s stock

6. Take Away Point • Executives often abuse corporate property and funds • Companies willingly allow it • Shareholders disappointed when receiving bill