Exxon and Corporate Aircraft

As we watch those companies subject to the bailout get rid of their corporate jets (this was required as part of the bailout of the auto companies), we have noted that other companies not obtaining government largess are still operating the planes.  Exxon-Mobile recently reported that it had a record year of profits (setting a record for a US company).  In the 2007 proxy statement (this year's hasn't been filed yet), the company disclosed that it had private aircraft and that the CEO, Rex Tillerson, had used it for personal travel (costing the company $41,000, not including capital costs). 

The proxy statement disclosed that its use for personal travel was necessary for "security reasons."  As the proxy statement explained:  "the Board requires the Chairman and CEO to use Company aircraft for both business and personal travel." 

Really?  What was the basis for the board's determination?  Was there any actual evidence of threats?  With only Tillerson making personal use of the corporate aircraft, why did the board not think other officers would be equally at risk? 

While we are not privy to the factors that actually went into the decision, we have written often on this Blog about how directors have an incentive to give the CEO what he/she wants in order to keep their lucrative sinecure on the board.  Thus, while there may have been a genuine concern about security, it's also possible that the board simply gave another perq to the CEO because he wanted it. 

To the extent Exxon continues to maintain the corporate aircraft and continues to allow its use by the CEO for personal travel (we shall find out when the proxy statement for 2008 is filed), it illustrates the fact that while companies accepting bailout funds are under pressure to eliminate this type of largess, other companies can quietly do what they've always done.  What needs to happen is a more permanent and substantive reform of the standards for determining executive compensation.  Preemption of Delaware law in short.

In other words, while financial institutions and companies taking bailout money are selling the corporate aircraft, there's no guarantee that the practice has actually become widespread in other areas of business.

Comments

[EH]

I generally agree with your posts, but confess I found this one to be ridiculous. The current infatuation with executive use of corporate aircraft is severely misplaced and a classic example of focusing on the trees rather than the forest. For companies that maintain their own planes, the costs are usually so immaterial that discussion is hardly warranted. More specifically, how can you possibly complain about $40,000 in incremental costs to a company that made over $40 billion in profits last year? People often scoff that personal use of corporate aircraft is required for security reasons, but those who do generally know very little about the very real hazards facing prominent American executives who travel abroad, often to some of the most unsafe countries on the planet. Hardly largess.

[J. Robert Brown]

Ridiculous? Here is a post that discloses CEOs who use the corporate aircraft for personal use, each costing their company somewhere in the vicinity of $500,000. http://www.theracetothebottom.org/executive-comp/executive-compensation-and-personal-use-of-the-corporate-jet.html It seems to me that while the amounts are modest for large corporations, CEOs are generally paid enough compensation and ought not be using other corporate assets for personal benefit.

[DG]

What you ignore is that a CEO of a company like ExxonMobile is on call 24/7, likely conducting business every day, regardless of whether arguably on holiday or on weekends. The company needs access to the CEO at all times. If an executive needs to travel like the general public; renting cars, standing in airport concourses, sitting on long flights, he or she would be out of touch. I suspect that Mr. Tillerson, like other execs, is on the phone or otherswise engaged in company business even while he is on personal travel. As a shareholder, I am happy to accomodate his travel. I would rather the company be able to reach him than have him standing around in some remote spot while his commercial flight is delayed. A small price to pay for the attention required of a busy CEO.

[J. Robert Brown]

Your points are good ones but here are my objections. The first is that personal use of aircraft is not justified by a need to be in touch with the boss. Its based on the boards decision that its necessary for the security of the CEO. If that's the reason, I would like to know as a shareholder why this CEO (in this case Tillerson) needs extra security while most other CEOs (including those in the same industry) do not. Second, is it really the case that personal use of corporate aircraft (which by the way is sometimes extended to family members including children) is really necessary, in an era of wireless communications, to keep in touch with a CEO? While the CEO may have to wait in line to board of plane, its his or her personal time. On all of this my main objection is that boards of directors allow this behavior not because its really good for the company but because its what the CEO wants. If I had more faith in the board, I would be more inclined to accept the decision of the board.

[GM]

If you wonder why XOM is concerned about the security of its CEO, go read the story of Sid Reso.

http://www.trutv.com/library/crime/gangsters_outlaws/outlaws/sidney_reso_kidnap/index.html

The company will be a long time forgetting that tragedy.