To quote Southwest Airlines commercials, plenty of us "wanna get away." No doubt, captains of industry do, too. But they won't be joining you in the exit row.
Some of America's largest companies don't allow their chief executives to fly commercial under any circumstances, even when they're off the clock. Many cite personal safety and security -- backed up by third-party risk assessments -- as primary reasons they require chief executives to use company planes.
Big names in Georgia business -- Coca-Cola, Home Depot and soft drinks bottler Coca-Cola Enterprises -- require their chief executives to use corporate aircraft for personal travel, including vacations and trips to other companies' board meetings. The practice dates back more than a decade at Coca-Cola and is longstanding at other companies.
Yet critics say security concerns are used to justify an unnecessary perk, which can cost hundreds of thousands of dollars per year.
"It's the silliest thing in the world," said David Yermack, professor of finance and business transformation at New York University's Stern School of Business. "The reality is the bargaining goes the other way. The CEO walks in and says, ‘Please require me to use the company plane.'"
Charles Elson, a University of Delaware corporate governance expert, said it is "ridiculous" and "totally improper" to cite safety or security for personal usage.
Corporate aircraft can be lightning rods for critics of business perks. The outrage peaked when executives of Ford, General Motors and Chrysler took private jets to Washington in 2008 to ask for a loan.
Business aircraft, however, don't always conform to the image of the high-flying chief executive. The majority of companies operating business aircraft have fewer than 500 employees, and only 22 percent of the passengers on business aircraft are top management, according to a study by research firm Harris Interactive for the National Business Aviation Association in 2009. Typically, only a small portion of aircraft usage is for personal travel.
Use of private aircraft for personal trips is generally reserved for highest-level employees. A number of companies require it: General Mills, Kimberly-Clark, Kraft Foods, PepsiCo, Procter & Gamble, Pfizer, Walt Disney, Philip Morris International, ExxonMobil, American Express, Ford and others.
A variety of companies and trade groups argue that corporate aircraft help executives make best use of their time when managing far-flung holdings. Between 2003 and 2007, companies that used business aircraft outperformed non-users in a variety of measures, including average annual revenue growth and profit growth, according to a report by Nexa Advisors LLC.
Policy governing personal trips varies among the Fortune 500. Hewlett-Packard's chief executive may use company aircraft for personal trips at his own discretion. Kellogg requires it when practical. Others make aircraft available for chief executives who travel from their homes to work in other cities. The federal government counts that as personal travel.
Most companies that make corporate jets available expect the chief executive to pay personal income taxes on the benefit.
A study published last year by The Corporate Library (now GovernanceMetrics International) found 40 percent of the companies in the S&P 500 reported aircraft expense for personal use by chief executives. The median reported cost rose by 51 percent, to nearly $97,000, in the five years leading up to the 2008/2009 fiscal year.
"We've seen the rise of a corporate plutocracy," said Shelley Alpern, vice president at Trillium Asset Management, which focuses on sustainable investing. "You're talking about executives that are already highly compensated and can afford first-class tickets for their travel. A company paying for private use is just not a good use of funds."
Coca-Cola requires chief executive and chairman Muhtar Kent to fly on the company aircraft for business and personal travel, indicating that the perk and others help minimize distractions.
"This requirement provides security given the high visibility of the company and its brands, maximizes [Kent's] productive time and ensures his quick availability," the company said. No other top manager at Coke gets to use company aircraft for personal purposes, except in extraordinary circumstances.
The company has six aircraft registered in Fulton County. That includes two Hawker 800XPs and two Gulfstream G550s, according to Federal Aviation Administration records.
Coca-Cola spent $165,000 on Kent's personal travel last year. PepsiCo spent twice that amount for chief executive Indra Nooyi and three other top executives. Coca-Cola Enterprises and Aflac for senior executives spent more than $185,000 last year.
Ford Motor Co. requires Alan Mulally and William Clay Ford, Jr., chief executive and chairman, respectively, to use private aircraft for all trips. The policy, which cost $294,000 last year, is meant to ensure the personal safety of the two top executives, "both of whom maintain significant public roles for Ford," the company said.
Bob Fornaro, chief executive of AirTran Airways, flies commercial for business and leisure trips. He uses commercial flights on other airlines when flying to a city AirTran doesn't serve, spokesman Tad Hutcheson said. Similarly, Delta Air Lines executives use the company's commercial jets for personal and business travel.
Most chief executives would be in no danger if they flew commercial, said Don Delves, a Chicago-based consultant focusing on executive compensation, corporate governance and performance. A few executives, such as Jeff Immelt of General Electric, are well recognized, but most aren't, Delves said.
"There are plenty of movie stars and sports figures who are much more recognizable, and they fly commercial," he said.
Delves said security is used as a justification for an exorbitant expense. "This is highly frowned on by shareholders -- an obvious red flag."
In a 2010 report, The Corporate Library said allowing a chief executive to use the corporate jet for personal travel may be justified on the grounds of security and efficiency. But the research firm said shareholders would be best served if chief executives reimbursed their companies for the equivalent of commercial airfare.
Elson, the Delaware governance expert, was more emphatic. He said there is no justification for personal use of a company plane, calling it a business tool that should be used for business purposes. He said security is a "tired excuse."
IBM and other wary companies disagree. The consulting and technology company said using corporate aircraft for all travel is a prudent step to ensure the safety of the chairman and chief executive. IBM has operations in more than 170 countries, including emerging markets where security concerns are a reality, the company said.
Reported attacks on high-level executives are rare, and it is impossible to track credible threats that are not reported. But they do happen. Yum! Brands, parent company of KFC, Pizza Hut and Taco Bell, said chief executive David Novak has been physically assaulted while traveling. Novak and his family have received threatening letters and calls at home, according to company documents.
People in the security industry still cite the 1992 kidnapping and murder of Exxon executive Sidney Reso as an example of the worst that can happen.
"Threats happen all the time ... and they don't make the newspaper," said Geoff Kohl, editor in chief of SecurityInfoWatch.com, a site that covers the security industry. "The threats are more real now."
Executive aircraft expenditures
(personal usage, top 5 executives)
Coca-Cola: $165,427
Home Depot: $144,684
Coca-Cola Enterprises: $188,350
Aflac: $186,810
Kimberly-Clark: $17,562
Kraft Foods: $81,838
PepsiCo: $322,461
McDonald's: $58,487
Procter & Gamble (2009): $223,620
Pfizer: $324,879
Walt Disney: $192,284
Philip Morris International: $198,013
ExxonMobil: $29,409
American Express: $203,466
3M: $164,764
Ford: $294,133
Source: company proxy statements, filed at www.sec.gov.
About the Author
