Corporate Governance

From the Pages of The Pomerantz Monitor: Relocation Subsidies: The Latest Corporate Giveaway

By Carolyn Moskowitz

The Pomerantz Monitor reports on one of the latest issues angering shareholders -- relocation subsidies. Reimbursement of relocation expenses is nothing new: if a company asks an employee to move, the least it can do is pay the costs incurred. But now we have relocation expenses on steroids. Some companies hiring new executives, or asking existing executives to relocate, are reimbursing them not only for the moving van, but also for any losses they incur when they sell their homes. In today?s market, that can be huge.

For example, according to the WSJ, when Microsoft recruited Stephen Elop as president of its business division in 2008, it paid him $5.5 million in relocation benefits, including $3.7 million to cover his losses on the sale of his home. When he later quit Microsoft in 2010, he got to keep his relocation bonus. In response to shareholder pressure, Microsoft has since put limits on its relocation packages, including a clawback that requires reimbursement of the company if the executive jumps ship within two years. 

According to the WSJ, about 74% of companies reimburse some or all of employees? home-sale loss if taking a job with the company forces the employee to move. Given the monumental housing losses some top honchos have taken, this has led to a shareholder mini-revolt at some companies.

For example, the California State Teachers? Retirement System, along with other institutional investors, fought the reelection of three directors of Electronic Arts who had approved over $1.5 million in relocation benefits, paid to the chief operating officer, including reimbursement of an $800,000-plus loss on resale of his house. The three directors barely avoided being kicked out at last August?s annual meeting.

At Delta Airlines, Institutional Shareholder Services, the proxy advisory firm, urged its clients to vote against the reelection of the compensation committee members who had approved the payout of $377,500 to the CEO for losses on his resale of his home. Delta then abruptly cancelled its home loss reimbursement program, and ISS backed off its re-election challenge. 

At many companies the problem persists, however. ISS has now recommended that shareholders vote against the reelection of directors at eight companies where lavish home loss payouts had been approved for relocated executives. The WSJ quoted ISS special counsel Patrick McGurn as saying that ?home-loss provisions are a hot-button issue with our institutional clients.?

This problem underscores what we already know: top corporate honchos live in a different world from the rest of us. They get reimbursed for their housing losses ? even if they then purchased another home at a price that was reduced just as much as the house the executive sold. And when they resell their new houses at a later time, and make a handsome gain, is the company going to share in that profit? Don?t hold your breath. Heads they win, tails shareholders lose.

Full post as published by PomTalk on January 04, 2011 (boomark / email).