Life on Air Dell…
Though we rarely devote two posts to the same filing, one of our tipsters pointed us to something else in Dell’s (DELL) proxy: Michael Dell’s expensive flying habit, which cost the company over $4 million last year. That’s a 42% increase over the $2.8 million that Dell (the company) reimbursed Dell (the CEO) for personal use of a corporate jet that Michael Dell owns. Here’s how the company describes this expense in the filing, which is not included in the summary comp table where a reasonable person might expect to see this disclosure. Instead, it’s at the bottom of p.42 under related party transactions. Here’s a snip:
Prior to July 2008, certain of our executive officers owned private aircraft, either outright or through fractional share ownership arrangements. Under our executive travel policy, which was approved by the Leadership Development and Compensation Committee of the Board, Dell reimbursed certain executive officers for the cost of using their private aircraft while traveling on Dell business. The reimbursement covered variable costs, plus a pro rata portion of the management fees, attributable to the executive’s Dell business travel, but did not cover any depreciation or other reimbursement for capital costs or purchase price. Mr. Dell continues to own his own private aircraft and the company will continue to reimburse him for the covered variable costs, plus a pro rata portion of the management fees attributable to his business travel.
While the $4 million is by far the biggest number we’ve seen this proxy season — only Abercrombie & Fitch’s (ANF) Michael Jeffries came close — it brings up an interesting question about just how real the numbers are that companies listed for personal use of the corporate jet this proxy season. We’ve seen all sorts of numbers and all sorts of disclosures about those numbers, which makes it pretty difficult to compare. Some companies for example, listed $125 in personal use — a number that may come close to covering the bottled water bill on a flight, instead of actually allowing someone to fly anywhere.
Perhaps, as the SEC is thinking about additional pay disclosures (as the WSJ reported today), they’ll add getting a better number for all of that Gulfstream travel to their list.
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Posted in Tags: CEOs, perks, proxy |
 6 Comments » |
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June 3rd, 2009 at 10:44 am
Lot of links today & yesterday about said rise in comp. All his bennies
were up across the board like security payments and such. This in face of drop in Dell revs. Dell also going to offer thin notebooks to Mid East.
http://www.newsfactor.com/news/Dell-Chief-s-2009-Compensation-Rises/story.xhtml?story_id=0030009Z4OO9
Me I’d rather have played the CRAY stock move.
“The highly stylized laptop, the world’s thinnest, was introduced at a showcase event in the new Dell Middle East Store located in The Dubai Mall, where models showed off the laptop dressed in ultra-chic and elegant abayas, created by acclaimed Emirati designer Ms Badr Al Badoor of Abaya Couture. Through its association with Abaya Couture in the UAE, and high-end fashion brands like TUMI in the United States, the new Adamo laptop is a key pillar in Dell’s consumer product portfolio and has become the standard bearer for the industry in terms of design.”
http://www.zawya.com/Story.cfm/sidZAWYA20090603093141/Dell%20Set%20To%20Tempt%20The%20Middle%20East%20With%20World's%20Thinnest%20Laptop
June 3rd, 2009 at 11:25 am
When CEOs are flying in the company jet on personal business, they have to pay taxes on whatever the companies value the plane rides at. In that case, the execs would like to see the cost be recorded as low as possible, to minimize their tax bills.
When CEOs are getting “reimbursed” for the cost of tooling around in their own jets instead, they suddenly have every incentive to OVERSTATE those costs.
Suddenly, it makes more sense that companies could report wildly different amounts for similar services. Amazing how that works.
June 3rd, 2009 at 8:57 pm
The disclosure makes it pretty clear that the company reimbursed Michael Dell for business use of his private jet and not personal use of the company’s jet. The SEC is pretty clear that business use for anything does not constitute a perk. Thus, this $4 million can’t be characterized as a perk (even if $4 million does sound high) and it definitely wouldn’t belong in the Summary Comp Table. You can’t compare this to another CEO’s “personal use” numbers because this was for business use. So, I’m not sure this is a case of Michael Dell having an expensive flying habit. It could be that he had to be flying all over the world to meet with potential clients and investors. It just happened to be that Mike Dell owned the plane. It’s just like when I drive my own car from NY to Philly for a business meeting and my company reimburses me for the gas, tolls, parking, etc, when I could have taken a car service and charged it to the corporate account. Actually, this is a case where Dell is disclosing more than other companies, since companies are not normally required to break out the company’s expenditures on business-related travel, even for all employees combined. It usually gets lumped in with SG&A.
As for calculating costs, the SEC is also pretty clear that it requires companies to report actual incremental cost to the company, and not the assignment of the hypothetical price of a first class commercial ticket on the same route, which is what the IRS requires you to report on a W-2. So, those numbers you see are the actual cost numbers. Keep in mind that those numbers will inflate if the cost of fuel is up in a given year, if the company’s planes are large gas-guzzlers, if the company is based in a remote location, etc. Plus, if one leg of the trip was for business, the cost of that leg gets backed out. It can get even more complicated, but that’s a discussion for another time and place…
June 3rd, 2009 at 9:55 pm
Hmmm……My understanding of the rules, and one of the things I’ve seen over and over in the proxies is the language that the reimbursement is the maximum mandated by the FAA, which I believe is the equivalent of a first-class ticket. I’ve also checked in with my go-to source on all things corporate jet related and he tells me that there’s countless ways to slice and dice this number.
I do agree that Dell (the company) is being more forthcoming here by reporting this number if that $4 million is all business-related, since they could have easily buried in SG&A. But that doesn’t make it look any better.
June 5th, 2009 at 8:30 am
At an average of say $30k per trip, that works out to about 133 trips per year, and about 11 trips per month. and if the average trip cost for air travel is half of that, at an economical $15 per trip that is about 22 trips per month or about 266 trips per year. That does seem like a lot. Mr. Dell must be a living out of a suitcase.
June 6th, 2009 at 8:59 pm
$4 million does look bad, but my point is that it’s not really fair to compare company expenditures for business-related travel (which are typically viewed as legitimate) to company expenditures for personal travel (which I do in fact have a problem with). If the $4 million had been for personal travel, the directors should be hanged. But, in this case, it wasn’t, so let’s not call it personal travel or try to compare it to the personal travel costs of other CEOs. However, what I think we can question is the wisdom of using Michael Dell’s personal plane as part of the company’s fleet. That’s a business decision, but seems like a questionable one to me. And, I don’t have anything to comapare it to, but $4 million does seem like a high amount to spend on travel for one employee. Was that really the most efficient way to handle that person’s travel? It would be interesting to compare it to what other companies spend on business-related travel, but that kind of gets into micromanaging after a certain point.