Of course, we all knew that directors were not the only beneficiaries of corporate munificence re air travel (see my May 22 article re American Airlines). Today’s Wall Street Journal features the air travel perks granted to CEOs of Fortune 1000 supposedly public companies. Some generous companies include IAC (its CEO earned $930,000 last year in salary alone, another $832,000 in air travel and who knows how much in stock and other benefits), Leucadia (its CEO enjoyed $744,000 worth of free air travel benefits) and E-Bay (Meg Whitman received $358,000 in free air travel benefits).
But, these numbers may be understated. The companies report the incremental cost of the flight as a benefit. Now ‘incremental’ cost sounds nice, but there are some companies which have planes that spend most of their time ferrying executives and their families and friends on personal trips, such as ferrying a nanny to their summer house. Shouldn’t the benefit as recorded by these companies include all of the costs of the plane, including fixed costs?
Some companies claim that the security of their executives warrants a private plane; this gives them tax benefits as well as being safe and secure. Yet, many companies don’t use the same rationale of their executive’s security. Should their security be so important? Are they really so valuable to their company? I think not.
Since these companies want to fulfill their patriotic duty and pay all taxes due, they do record a portion of these flight benefits as income taxable to the CEO. The problem is the tax rules allow them to record a very small amount of the benefit as taxable. The journal lists one example where income of $1500 is attributable to a flight whose incremental cost is $11,000. Moreover, many of these companies also give the CEO money to pay the taxes due on this income; Whitman was given a ‘bonus’ of $128,000 to cover her taxes on the air perquisite.
The lesson to be learned - Raise your kid to be a CEO of a Fortune 1000 company.
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