Executive compensation long has been a target of shareholder activists. Recently, those activists have begun singling out for special attention the countless perks executives get - apartments, limos, drivers, private planes, etc.... I'm no fan of artificial limits on executive compensation, but I think the activists have a very solid point on the perk issue. As we've seen in Tyco and other recent scandals, these perks can be a very significant percentage of an executive's compensation. Yet, because they typically are treated as expense reimbursement, there is no disclosure of the perks. Indeed, precisely because they are viewed as a business expense to be reimbursed, even the board of directors often is unaware of the magnitude of the perks. All of which leads to a very interesting story in today's WSJ ($):
In late December 2001, the domestic entrepreneur and a friend checked into a $1,500-a-night suite at the Las Ventanas al Paraiso resort in Mexico. Included in the $17,000 bill was a $300 private kayak tour, a $300 hiking tour for three and seven charges at the Sea Grill. Ms. Stewart's business manager submitted the trip, which included a stop in Panama, to Martha Stewart Living Omnimedia as a business expense.
The company turned her down, but the business was used to receiving bills for what appeared to be personal items. According to testimony in federal court during Ms. Stewart's trial for conspiracy and obstruction of justice, she expensed some hair stylist appointments as well as the use of a driver to go antiques shopping on weekends. She also used a company employee to help manage her personal finances.
Is Martha run amok? Consider the following justification: Martha is a lifestyle doyen. Who is to say that Martha's kayak tour, say, wasn't research for a future TV show or magazine article? As for stylists:
Martha Stewart Living ... owns the exclusive license to her "name, likeness, image, voice and signature," according to Securities and Exchange Commission filings. It also owns the trademark that incorporates Martha Stewart's name and has the right to develop new products and services with her name even if she no longer controls the company.
Martha thus is the public face of the company. Isn't it to MSO's advantage that she make a good appearance? Interestingly, some shareholder activists are willing to give Martha a pass for precisely this reason:
"I never thought I'd be defending Martha Stewart," says Sarah Teslik, executive director of the Council of Institutional Investors in Washington, who has spoken out against executive perks. But "if you're Martha Stewart, your image is important and I would think hair and makeup are extremely important."
All of which also raises an issue about which I've blogged before; namely, whether MSO should - or even can - rebrand itself so as to lessen its dependence on Ms. Stewart.
