Execs Financial Planning Perks Are on the Chopping Block

By Mark Bruno

Apr. 6, 2009

As bailed-out financial institutions take more heat over the massive pay packages dished out to their executives, a key fringe benefit usually awarded to top officers—the financial planning perk—appears to be on the chopping block.

Every element of executives’ pay is being carefully scrutinized by lawmakers, shareholders and taxpayers. As a result, several of the nation’s largest financial institutions have already stopped footing the bill for their executives’ financial planning, which historically has been a staple of compensation packages for CEOs, CFOs and other top brass.

Bank of New York Mellon Corp., Wells Fargo & Co. and SunTrust Banks, for example, have elected to stop subsidizing the use of financial planners for their top executives, according to an analysis of some of the first 2009 proxy filings conducted by Investment News, a sister publication of Workforce Management.

While it’s still early in the proxy season, observers suggest that these banks’ actions could foreshadow a larger move away from providing executives with financial advisors.

“It’s hardly a surprise, and I’d be shocked if more companies didn’t follow their lead,” says Pearl Meyer, a senior managing director at New York-based compensation consulting firm Steven Hall & Partners. “Any perk that doesn’t have a clear business rationale is under the microscope at the moment.”

While free financial planning is hardly as lavish—or as costly—as perks such as corporate-jet access or chauffeur-driven cars, it can add up to as much as $20,000 a year per executive.

In fact, CEOs at Fortune 100 companies collectively received just under $1 million in financial planning perks in 2007, according to data that compensation research firm Equilar of Redwood Shores, California, culled from 2008 proxy filings for Investment News.

This could be a business opportunity for advisors, industry observers say.

It’s conceivable that millions of dollars in financial planning services could be in play over the coming year since hundreds of large and midsize companies typically award the perk to several of their top executives.

“It’s a gradually melting ice cube,” says George Paulin, Los Angeles-based chairman and chief executive of Frederic W. Cook & Co., a New York-based compensation consulting firm to a number of financial institutions.

Paulin and other pay experts say that companies have viewed the perk as a critical business expense for several reasons.

For one, financial planners can make sure that executives are paying their personal income taxes accurately and on a timely basis.

“If a CEO doesn’t pay his taxes, a company’s reputation could be at risk,” says Charles Tharp, executive vice president for policy at the Center on Executive Compensation in Washington.

Also, financial planners often help executives buy and sell their personal company stock holdings, a role that helps to alleviate some potential conflicts of interest in the boardroom.

“There’s a seemingly independent third party advising an executive on their insider transactions,” says Ira Kay, director of the compensation practice at Arlington, Virginia-based consulting firm Watson Wyatt. “Companies have seen that there’s a real business value in paying for that additional layer.”

While that benefit probably still exists, its value now may be viewed as a tougher sell within the hypersensitive political environment.

“The ‘natural’ executive compensation plan is now being totally redefined,” says Marylin Prince, founder of New York-based executive search firm PrinceGoldsmith. “Everything is being re-evaluated.”

To that end, Bank of New York Mellon noted in its proxy filing in March that it will be shedding the financial planning perk—along with personal cars, parking and club membership dues—for its executives in 2009 and will “retain [only] perquisites that are important for the conduct of business and for security reasons.”

As an aside, personal use of Bank of New York Mellon’s aircraft will still be included in executives’ perks, along with cars and drivers and executive life insurance, according to the proxy.

At the same time, San Francisco-based Wells Fargo, which historically has offered its executives limited perks as part of their compensation deals, specifically noted in its proxy that it will “phase out as soon as practicable in 2009 a financial planning benefit to executive officers.”

Atlanta-based SunTrust, meanwhile, made it a point to specify in its proxy filing last month that the company moved to eliminate any club membership, home security and financial planning perks for its executives at the beginning of 2008.

Each of these three financial institutions has received bailout funds from the Department of the Treasury, which subjects the companies to certain restrictions on executive compensation.

Lawmakers, however, did not require any recipients of federal funds to limit or eliminate perks paid to top executives, says David Schmidt, a senior consultant at James F. Reda & Associates, a New York-based compensation consulting firm.

“So this is something these companies must see as an appropriate gesture at the very least,” he says.

Kevin Heine, spokesman for Bank of New York Mellon, declined to comment on the perk beyond what was mentioned in the proxy, as did Melissa Murray, a spokeswoman for Wells Fargo. Mike McCoy, spokesman for SunTrust, did not return a call seeking comment.

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