Planning perks for top execs are on the chopping block

As bailed-out financial institutions take more heat over the massive pay packages dished out to their executives, a key fringe benefit usually awarded to top officers — the financial planning perk — appears to be on the chopping block.

Every element of executives’ pay is being carefully scrutinized by lawmakers, shareholders and taxpayers. As a result, several of the nation’s largest financial institutions have already stopped footing the bill for their executives’ financial planning, which historically has been a staple of compensation packages for chief executives, chief financial officers and other top brass.

Bank of New York Mellon Corp., Wells Fargo & Co. and SunTrust Banks Inc., for example, have elected to stop subsidizing the use of financial planners for their top executives, according to an InvestmentNews analysis of some of the first 2009 proxy filings.

While it’s still early in the proxy season, observers suggested that these banks’ actions could foreshadow a larger move away from providing executives with financial advisers.

“It’s hardly a surprise, and I’d be shocked if more companies didn’t follow their lead,” said Pearl Meyer, a senior managing director at New York-based compensation consulting firm Steven Hall & Partners LLC. “Any perk that doesn’t have a clear business rationale is under the microscope at the moment.”

While free financial planning is hardly as lavish — or as costly — as perks such as corporate-jet access or chauffeur-driven cars, it can add up to as much as $20,000 a year per executive.

In fact, CEOs at Fortune 100 companies collectively received just under $1 million in financial planning perks in 2007, according to data the compensation research firm Equilar Inc. of Redwood Shores, Calif., culled from 2008 proxy filings for InvestmentNews.

This could be a business opportunity for advisers, industry observers said.

It’s conceivable that millions of dollars in financial planning services could be in play over the coming year since hundreds of large and midsize companies typically award the perk to several of their top executives.

“It’s a gradually melting ice cube,” said George Paulin, Los Angeles-based chairman and chief executive of Frederic W. Cook & Co. Inc., a New York-based compensation consulting firm to a number of financial institutions.

Mr. Paulin and other pay experts have noted that companies have viewed the perk as a critical business expense for several reasons.

For one, financial planners can make sure that executives are paying their personal income taxes accurately and on a timely basis.

“If a CEO doesn’t pay his taxes, a company’s reputation could be at risk,” said Charles Tharp, executive vice president for policy at the Center on Executive Compensation in Washington.

Also, financial planners often help executives buy and sell their personal company stock holdings, a role that helps to alleviate some potential conflicts of interest in the boardroom.

“There’s a seemingly independent third-party advising an executive on their insider transactions,” said Ira Kay, director of the compensation practice at Arlington, Va.-based consulting firm Watson Wyatt Inc. “Companies have seen that there’s a real business value in paying for that additional layer.”

While that benefit probably still exists, its value now may be viewed as a tougher sell within the hypersensitive political environment.

“The ‘natural’ executive compensation plan is now being totally redefined,” said Marylin Prince, founder of New York-based executive search firm PrinceGoldsmith LLC. “Everything is being re-evaluated.”

To that end, Bank of New York Mellon Corp. noted in its proxy filing this month that it will be shedding the financial planning perk — along with personal cars, parking and club membership dues — for its executives in 2009 and will “retain [only] perquisites that are important for the conduct of business and for security reasons.”

As an aside, personal use of Bank of New York Mellon’s aircraft will still be included in executives’ perks, along with cars and drivers, as well as executive life insurance, according to the proxy.

At the same time, San Francisco-based Wells Fargo — which historically has offered its executives limited perks as part of their compensation deals — specifically noted in its proxy that it will “phase out as soon as practicable in 2009 a financial planning benefit to executive officers.”

Atlanta-based SunTrust, meanwhile, made it a point to specify in its proxy filing this month that the company moved to eliminate any club membership, home security and financial planning perks for its executives at the beginning of 2008.

Each of these three financial institutions have received bailout funds from the Department of the Treasury, which would subject the companies to certain restrictions on executive compensation.

Lawmakers, however, did not require any recipients of federal funds to limit or eliminate perks paid to top executives, said David Schmidt, a senior consultant at James F. Reda & Associates LLC, a New York-based compensation consulting firm.

“So this is something these companies must see as an appropriate gesture at the very least,” he added.

Kevin Heine, spokesman for Bank of New York Mellon, declined to comment on the perk beyond what was mentioned in the proxy, as did Melissa Murray, a spokeswoman for Wells Fargo. Mike McCoy, spokesman for SunTrust, did not return a call seeking comment.

E-mail Mark Bruno at [email protected].