Corporate Jets become Private Golf Shuttles for Top Execs
By Mark Maremont: The Wall Street Journal
Oct. 9, 2005

  Pittsburgh's weekend weather forecast on Friday, Jan. 28, called for light snow and temperatures in the 20s and 30s, but that didn't keep Raymond LeBoeuf, then chief executive of PPG Industries Inc., from playing golf. At 4 p.m., a Hawker 800 jet owned by the paint and glass company carried Mr. LeBoeuf from a small Pittsburgh airport to balmy Naples, Fla.
  On Sunday, Mr. LeBoeuf played an 18-hole round of golf in Naples at the Hole In The Wall club, an invitation-only private club, whose entrance is a small, discreetly marked opening in a large hedge. His score was an impressive 82. The PPG jet flew Mr. LeBoeuf back to the company's Pittsburgh headquarters early on Monday.
  The following weekend, Mr. LeBoeuf, 58 years old, again flew to Naples, where he owns a home valued at more than $5 million. That time he improved his score to 77 at the Naples club, which has a five-year waiting list to join. In all, Mr. LeBoeuf, who retired in July, traveled to Naples on PPG's two corporate jets on eight weekends between late January and April. He played golf on each visit, and his scores, like those of many executive golfers, are posted on a database operated by the U.S. Golf Association.
  At PPG, spokesman Jeff Worden confirms that Mr. LeBoeuf was aboard the company jet on the eight weekend trips to Naples, "where he was in the process of establishing a new primary residence in preparation for his retirement." He adds that PPG has a security plan "requiring" the company's chairman and president to use corporate aircraft for personal as well as business trips. Mr. LeBoeuf, who was paid $4 million in salary and bonus last year, says that "what I did there was consistent with corporate policy and the desires of our board."
  There are thousands of corporate aircraft flying the skies over the U.S. Most companies say these planes are necessary to conveniently and securely transport employees to distant facilities or meetings. Top executives "are really 24-hour-a-day, seven-day-a-week people," notes Mike Nichols, an official with the National Business Aviation Association, a trade group. "These are really flying offices."
  But a comparison of golf scores and flight records, some of which are available from commercial aviation-data services, shows that companies also use their jets for another purpose: as airborne limousines to fly CEOs and other executives to golf dates or to vacation homes where they have golf-club memberships.
  At some companies, hundreds of flights in recent years have involved golf, played either for business, pleasure or both. Among companies whose top executives have flown on corporate jets to golf destinations are Alltel Corp., Motorola Inc., General Dynamics Corp., McKesson Corp., Verizon Communications Inc., SLM Corp. (Sallie Mae), U.S. Steel Corp., Cintas Corp., PNC Financial Services Group Inc. and National City Corp.
Companies usually pick up the tab for personal travel on their jets, so each trip can cost shareholders tens of thousands of dollars. The full cost of these flights can be hard to unravel. Under Securities and Exchange Commission regulations, companies must disclose the annual so-called incremental cost of personal travel by top executives once the cost of total perquisites exceeds either $50,000, or 10% of an executive's annual salary and bonus. Companies typically define incremental cost as the added expense of a given flight -- such as fuel, landing fees and a crew's hotel costs.
  This method of disclosure can understate the cost of flying chief executives to vacation destinations because it excludes expenses such as crew salaries, many maintenance charges and the purchase price of the plane. The business jets favored by many public companies cost $15 million to $40 million to buy and roughly $3,000 to $7,000 to operate for an average hour, according to flight-cost data from Conklin & deDecker Aviation Information, an aviation research and consulting firm based in Orleans, Mass. The SEC is considering switching to a new disclosure formula that would reflect these broader costs.  If adopted, it could double or triple the flight costs that companies must disclose.
  For top executives, this all adds up to a bargain. Typically, they pay only the income tax assessed on the value of personal flights. The tax usually amounts to just a few hundred dollars per flight, and is determined by a complex IRS formula that takes into account the distance traveled and the employee's position in the company.
  Alltel's four jets have landed more than 165 times over the last four years at an airport in Augusta, Ga., according to a database containing flight information filed with the Federal Aviation Administration. The airport is near the Augusta National Golf Club, which hosts the annual Masters Tournament. Joe Ford, Alltel's chairman, and his son Scott Ford, the company's chief executive, are members of the golf club.
  Andrew Moreau, a spokesman for Alltel, a big telephone company based in Little Rock, Ark., declines to comment on the Augusta trips. He says company planes are sometimes used to travel to destinations for "customer entertainment." The "policy does permit certain usage for personal purposes," he says, and executives pay taxes on the value of those flights. Alltel also owns a local cellular company in the Augusta area.
  David Yermack, an associate professor at New York University's Stern School of Business, found in a research paper that CEOs who belong to golf clubs far from their company's headquarters tend to be big users of their company planes. The publicly disclosed cost of aircraft use for these CEOs is two-thirds higher, on average, than for CEOs who have disclosed air travel but are not long-distance golf-club members, according to Mr. Yermack, who presented the paper on corporate-aircraft use at the annual meeting of the American Finance Association this year.
  A very good golfer shoots at "par," roughly 72 strokes for an 18-hole course, while professionals like Tiger Woods typically score lower. To facilitate competition between golfers of unequal skill, players establish handicap indexes, which are calculated from recent scores. As part of a peer review process, to make sure golfers don't fudge their scores, the golfing records of many players are available on Internet sites operated by the USGA and other golf associations and services. The Wall Street Journal compared the golf data on these sites with information about flight plans to figure out when company planes were flying top executives to golfing destinations.
  Golf databases also list clubs to which players belong. Sometimes those clubs are far from a chief executive's corporate home. Edward Zander, CEO of Motorola, works at the company's Schaumburg, Ill., headquarters. But he's listed in the USGA database as a member of The Preserve Golf Club in Carmel, Calif.
  Equity membership in the club, one of Golf Digest's top 100 courses in the U.S., is limited to 300 owners of property in the surrounding development. Mr. Zander and his wife paid $1.9 million for their lot in 2000, and have built a 9,146-square-foot house and 1,363-square-foot garage, with a pool, two spas, a guest house and a caretaker's house, according to county records.
  When he joined Motorola last year, Mr. Zander agreed to relocate from the Silicon Valley area, where he had previously been president of Sun Microsystems Inc. Motorola gave him "reasonable" access to company jets, including a minimum of 100 hours a year of personal time, according to his employment agreement.
  Motorola then commissioned a security study and concluded that Mr. Zander should be required to use company aircraft whenever he flies, effectively making the 100-hours-a-year agreement moot.
  So far this year, Mr. Zander has recorded 10 golf scores at the Preserve club, mostly on weekends, although two were on Fridays. Before and after each of those games, Motorola jets flew to and from the nearby Monterey, Calif., airport.
  Typical was a journey that began on Thursday, July 28, when a Motorola-owned Dassault Falcon 900 traveled from a Chicago-area airport to Monterey, according to a flight database. Mr. Zander, who recently sported a 16.7 handicap, shot a 93 on Friday and a 100 on Saturday. The jet returned to Chicago later that day.
  According to Conklin & deDecker, the round-trip cost of that trip would be more than $46,000, based on an average cost per mile for operating such a jet. That would include the price of about 2,400 gallons of fuel, maintenance, crew salaries and a market depreciation rate to cover the plane's purchase price. Mr. Zander will likely pay about $600 to $1,200 in taxes for the trip.
  In a statement, Motorola spokeswoman Jennifer Weyrauch said the company's board believed that allowing personal use of company aircraft was "appropriate to secure a CEO like Mr. Zander" and that Motorola fully discloses his jet usage in its proxy. Mr. Zander "frequently combines personal time and business during his trips to California," wrote Ms. Weyrauch.
  Mr. Zander made $6.1 million in salary and bonus in 2004, and was granted an additional $9.1 million in restricted stock plus 2.6 million stock options.
  Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, calls it "disgusting" for a company to guarantee its CEO 100 hours of free personal flight time. "A corporate aircraft isn't supposed to be a shuttle to a vacation home," says Mr. Elson. "We pay CEOs enough. They can afford to pay to fly to their vacation homes."
  Some CEOs belong to golf clubs in more than one distant location and use corporate jets to get there. David Daberko is chief executive of National City, the eighth-largest U.S. bank, which is headquartered in Cleveland and operates primarily in the Midwest. The bank's two jets make frequent trips to Palm Beach, Fla., and Martha's Vineyard, Mass., where according to USGA records Mr. Daberko belongs to golf clubs.
  Over three months starting in late January, National City jets flew at least nine times to Florida, mostly to the Palm Beach area, where Mr. Daberko owns a 3,450-square-foot house adjacent to the Lost Tree golf club. Mr. Daberko, who recently had a 7.0 handicap, recorded 10 rounds of golf over that period, mostly at Lost Tree but also at the nearby Seminole golf club, one of Golf Digest's top 10 U.S. courses.
  One trip started the morning of Thursday, March 17, when a bank-owned jet flew from Cleveland to Palm Beach, according to a flight database. Mr. Daberko recorded scores of 85 and 87 at the Lost Tree course on Friday and Saturday, also listing a second Saturday round at another course, according to the USGA database. The jet returned to Cleveland on Sunday afternoon, March 20.
  This summer, the same jet made a series of trips to and from Martha's Vineyard, where Mr. Daberko belongs to the Vineyard Golf Club. He played there nine times during July and August.
  Mr. Daberko earned $3.1 million in cash compensation last year. He was granted $1.7 million in restricted stock and 420,000 options.
  Kristen Baird Adams, a National City spokeswoman, says Mr. Daberko is required by the board to use the company's jets for all travel. His trips this year have been "primarily for business purposes," she says, adding that Mr. Daberko has taken seven personal round-trip journeys on National City jets this year. Four were to Florida and two were to Massachusetts. Mr. Daberko's personal travel, she says, is "reported in full compliance with SEC and IRS rules." She says that National City reimburses Mr. Daberko for any extra taxes stemming from his personal flights.
  Even retired CEOs use company planes for golf outings. Thomas H. O'Brien retired as CEO of PNC, a large Pittsburgh bank, in 2000, and left the chairman's job in May 2001. He's still an outside director -- and a member of the Augusta National golf club.
  PNC's jets have flown to Augusta more than 55 times since late 2001, according to database records. A company spokesman confirms that Mr. O'Brien was aboard on some occasions, and notes that company policy allows outside directors to use the plane "if it is for strictly business purposes."
  An even more frequent destination for PNC's jets is Vero Beach, Fla., where Mr. O'Brien and James Rohr, PNC's current chairman, own beachfront homes. Both are listed in the USGA database as members of the Redstick Golf Club, an exclusive, four-year-old club in Vero Beach with a Spanish Colonial-style clubhouse featuring stuffed leather chairs, a moose head on a wall and a membership limited to men.
  PNC's two jets have landed in Vero Beach more than 100 times in the past four years. Sometimes the jets have shuttled between Vero Beach and Augusta.
  According to the company's most recent proxy, PNC's board in 2004 established a $50,000 annual cap on the incremental costs to the company of providing perquisites to any individual executive, including personal jet travel. The PNC spokesman, Brian Goerke, said Mr. Rohr reimburses the company for the "incremental costs" of his flying beyond the limit. Those costs, such as fuel and other items related to an individual flight, are generally less than the total cost of operating a private plane if fixed costs were included. (The incremental cost of flying round-trip from Pittsburgh to Vero Beach on a Hawker 800 jet like those flown by PNC would be about $5,450, less than half of the $12,780 cost of that same trip using average per-mile expenses, according to Conklin & deDecker data.)
  Mr. O'Brien didn't return phone calls seeking comment.
  At Cintas, the nation's largest provider of industrial laundry services, chairman and founder Richard T. Farmer is known for espousing frugality. "We have a Spartan attitude about our business," Mr. Farmer wrote in a 1999 edition of "The Spirit is the Difference," a book distributed to Cintas employees spelling out Mr. Farmer's vision of the company's culture. "We are not concerned with the frills of expensive restaurants, fancy offices or luxurious accommodation. We avoid personal extras."
  Mr. Farmer is on the Forbes 400 list of the U.S.'s richest people and his personal wealth is estimated at $1.4 billion. In addition to his home near Cintas's headquarters in   Cincinnati, Mr. Farmer owns a 7,357-square-foot waterfront house on Key Largo, Fla., valued for tax purposes at nearly $6 million. During the winter, he frequently plays at the Card Sound Golf Club on Key Largo and is a member of the nearby Ocean Reef Club.
  Since late 2001, two Cintas-owned corporate jets have landed about 100 times at an airstrip on Key Largo owned by the Ocean Reef Club. Between November 2004 and May, the planes landed there two dozen times. According to USGA records, Mr. Farmer played golf on Key Largo 15 times between February and early May. When the weather turned warmer in Ohio, he began playing at the Camargo Club in Cincinnati.
  Pamela Lowe, a Cintas spokeswoman, says Key Largo is Mr. Farmer's "primary residence," and "a significant portion of his travel to and from his Florida home is to attend company management meetings" and other business functions. She adds that personal use of the corporate aircraft "is a component of the total annual compensation package for Mr. Farmer," and appropriate taxes are paid.
  Each round-trip from Cincinnati to Key Largo aboard the company's Bombardier Challenger 600 jet costs more than $18,000, according to the Conklin & deDecker estimate of average per-mile costs for such a plane.
  General Dynamics, the defense contractor, owns Gulfstream Aerospace, one of the leading makers of business jets. The Falls Church, Va., company has its own fleet of business jets, including a Gulfstream V sometimes used by CEO Nicholas Chabraja.
  Between late January and late April of this year, General Dynamics planes landed at the Fort Myers, Fla., airport nine times, often flying there from Washington on Friday afternoons. Fort Myers is the nearest major airport to Sanibel Island, where Mr. Chabraja belongs to a golf club and until July owned a vacation house. Mr. Chabraja played golf on Sanibel 10 times between Jan. 30 and April 23, according to USGA records.
  Kendall Pease, a General Dynamics spokesman, confirms that Mr. Chabraja was on board the plane on eight of the flights to Fort Myers but says only five of the trips were personal.
  Mr. Pease says Mr. Chabraja is authorized by the board to use the aircraft for personal reasons, and the incremental cost is disclosed in the company's proxy. "It's part of his compensation," says Mr. Pease. The spokesman calls Mr. Chabraja's ability to travel on a company jet "an extremely important business tool, because it gives him security and flexibility at all times."

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