CEO security-tabs fall at Google, FedEx and Disney
Starbucks pays more to protect CEO Howard Schultz
By Matt Andrejczak, MarketWatch April 12, 2010, 2:34 p.m. EDT
SAN FRANCISCO (MarketWatch) — Executives at Kodak and Deere are now paying for their own home-security systems, a sign that executive-security is one perk corporate board’s are scrutinizing more closely.
Indeed, other companies cut back on security expenses, too — especially those known to spend big bucks on protecting their CEO, according to a MarketWatch review of proxy statements filed so far this year by Dow 30 components and larger S&P 500 companies.
The security tab for Google CEO Eric Schmidt fell 42% to $233,542 last year. The bill for FedEx CEO Fred Smith dropped 23% to $461,405, while the cost for Disney CEO Bob Iger dipped 9% to $589,102.
Since 2007, Google (NASDAQ:GOOG) has paid $1.1 million in personal security expenses for Schmidt, FedEx (NYSE:FDX) has paid $1.5 million for Smith, and Disney (NYSE:DIS) has paid $1.9 million for Iger.
Compensation consultant Todd Gershkowitz of Farient Advisors said CEO security is not an egregious perk compared to goodies like country-club memberships, chauffeurs or taxes companies pay on super-sized severance packages for axed CEOs.
But company-provided security “becomes an invasion of privacy, some CEOs don’t want it, some accept it,” said Gershkowitz, who considers CEO security expenditures more of an issue about risk than one of executive perks handed out by directors.
He said he’d like to see more detailed disclosures about CEO security in proxies.
Deere (NYSE:DE) and Kodak (NYSE:EK) won’t pay the bill for residential security anymore, according to their yearly proxy statements filed with the Securities and Exchange Commission.
Starting this year, Deere said eight executives will have to reimburse the company for security services that had included “drive-by surveillance and response to security alarms” for certain executives by Deere’s corporate security staff.
This perk cost Deere less than $19,000 last year, but the exact number is unknown since the tractor maker lumped the cost in with spouses attending company events.
Kodak paid a one-month bill of $876 for five executives, before dropping the perk in February 2009. Long-struggling Kodak, which lost $210 million last year, will still pick up the tab for CEO Antonio Perez, however.
At Citigroup (NYSE:C) , the bank won’t be paying for personal bodyguards and armored vehicles for Roberto Hernandez Ramirez, a Mexican-based banking executive who stepped off Citi’s board last spring. Since 2007, Citi had paid $5.4 million for his security, office space and airplane use.
The emphasis corporate boards put on CEO security expenses can vary vastly depending on their culture. IBM (NYSE:IBM) , Dupont (NYSE:DD) and Procter & Gamble (NYSE:PG) require their CEOs to use the corporate jet even for personal travel.
Compare that to UPS (NYSE:UPS) . UPS CEO Scott Davis and other top execs fly commercial when traveling for business.
Terry Lundgren, CEO at Macy’s (NYSE:M) , is provided a car and driver to shuttle him around New York City. That cost more than $261,000 in 2009. Intel (NASDAQ:INTC) CEO Paul Otellini drives himself to work from his San Francisco home to Silicon Valley when he is in town.
Since proxies from S&P 500 companies are still trickling out, it’s too early to determine if the nation’s 500 largest companies cut CEO security perks as they slashed other operating costs during the so-called Great Recession.
CEO security tabs had been on the rise from 2006 through 2008 at Fortune 100 companies, according to Equilar, an executive compensation research firm.
The security tab for Starbucks CEO Howard Schultz has climbed in each of the past three years. It rose 25% to $640,000 in 2009 due to “increased personal security details” and upgrades to Schultz’s residential security systems.
Coke (NYSE:KO) paid more to protect Jose Octavio Reyes, its top executive in Mexico, where drug violence worsened last year. His security bill, which comes with bodyguards and 24-hour residential security, rose 36% to $488,719.
SEC disclosure rules changed in 2007, forcing companies to illuminate perks valued over $10,000. Before then, companies used studies from boutique security firms to justify the costs as business expenses for federal tax reporting purposes.
The costs to hire bodyguards or armored vehicles, or install home-security systems, pop up in proxy statements of publicly-traded companies, revealing what companies are willing to pay to keep the CEO and their families safe. The SEC deems such costs a perk and the tab is part of the “all other compensation” column in executive compensation tables.
For a larger home, the cost to install a home security system runs from $7,000 to $10,000 and typically includes fire alarms, smoke detectors and sprinkler systems, according to Tim McKinney, group director of the custom home unit at ADT, the home-security firm.
That compares to the set-up cost of $400 to $600 for a regular home, McKinney said.
Executive security is not limited to CEOs of public companies.
Hedge fund managers are concerned, too, said former U.S. Secret Service agent Christopher Falkenberg, whose firm Insite Security has set up an office in Greenwich, Conn., the New York City suburb that is home base for many hedge funds.
Falkenberg, who once protected President Bill Clinton, said he’s been developing family security plans for the spouses and children of hedge fund managers. The aim is to make their families harder targets to would-be criminals.
3M (NYSE:MMM) and Caterpillar (NYSE:CAT) got a scare last year when factory bosses in France were held hostage by laid-off workers who demanded higher severance pay outs.
During the recession, Jeff Sexton, a former United Nations security adviser, said his firm was hired to ensure the safety of human-resource managers and other executives when manufacturing or corporate office workers were about to be laid off.
In some cases, he said, the factories were in small towns and the company was the biggest employer, making it a delicate situation. “It can be really trying and emotional time,” said Sexton, who runs Fairfax, Va.-based Sexton Executive Security.
Starbucks (NASDAQ:SBUX) , which closed 1,000 stores during the economic downturn, has run up a security-tab of $1.6 million for Schultz since 2007.
The coffee giant pays the bill because of the risks associated with his status as a “high-profile founder” of a large, multinational company, the coffee chain said in its proxy.
Schultz “is closely identified with Starbucks brand and the board firmly believes his vision and leadership are critical components of Starbucks success,” the proxy added.
The same could be argued for Apple CEO Steve Jobs. But Apple (NASDAQ:AAPL) lists no security costs for Jobs in its proxy statement. The company couldn’t be reached for comment. Recently, Jobs stopped by Apple’s Palo Alto, Calif. store with his wife and daughter the day the much ballyhooed iPad went on sale.
Microsoft (NASDAQ:MSFT) doesn’t list any security costs for CEO Steve Ballmer, either. The software giant has had at least one incident of note: Former CEO Bill Gates got hit in the face by a cream pie during a 1998 visit with European Union antitrust officials.
Oracle CEO Larry Ellison and Dell CEO Michael Dell are among the most-protected U.S. tech executives — at least according to security costs listed in regulatory filings.
In the past three years, Oracle has paid $4.6 million for a residential security program that includes security guards at Ellison’s residence. Dell (NASDAQ:DELL) has paid $3.2 million for bodyguards and home-security for its founder. Dell is known to send advance security detail teams to scout out certain locations where the CEO will be.
The boards of both tech companies call it an appropriate business expense. Ellison owns 23% of Oracle (NASDAQ:ORCL) . Dell owns 13% of his namesake personal computer maker.
As part of an executive severance agreement, Whirlpool (NYSE:WHR) is still on the hook to the pay for the cost of a car and driver for Paulo Periquito, its former head of Latin America who lives in Brazil. He resigned at the end of 2009 and he keeps the car and driver through April 2012, according to a regulatory filing.
The cost of the car and driver was $104,352 in 2009.
Here are some other examples found in recent proxy statements:
• 3M ponied up $35,864 to “complete several projects improving the personal security” of its CEO George Buckley and his family “at their residences.” That paid for monitoring service fees, installation services and materials.
• Former Schering-Plough CEO Fred Hassan was protected with personal bodyguards, home-security system, and a car and driver. The drug maker explained that its executives had received threats from animal rights activists and others because of the products it sells. Since 2006, Schering-Plough had paid $442,196 for those services. Hassan stepped down from Schering-Plough after its merger with Merck (NYSE:MRK) in November 2009.
• Ford Motor Co. (NYSE:F) paid $1.2 million in security costs for its executive chairman Bill Ford, Jr. last year. In 2008, this expense was not listed because Ford (the great-grandson of Henry Ford) didn’t meet the definition of “named executive” under SEC rules. Meanwhile, home-security expenses for CEO Alan Mulally were $43,447, down from $112,114 in 2008.
• Inter-Con Security Systems does work for some Fortune 100 companies, including Wal-Mart Stores (NYSE:WMT) and McDonald’s (NYSE:MCD) . Inter-Con CEO Enrique Hernandez, Jr. also is popular with corporate boards. He is a director at Chevron (NYSE:CVX) , Wells Fargo (NYSE:WFC) , McDonald’s, and Nordstrom (NYSE:JWN).
Copyright © 2010 MarketWatch, Inc. All rights reserved. http://www.marketwatch.com/story/ceo-security-tabs-fall-at-google-fedex-and-disney-2010-04-12