14A Perquisite Disclosure - Aircraft

2015.Sept.25  Aircraft Perq Litigation Dismissed vs Nordstrom  A Washington district court has dismissed Burbrink v. Campbell, which alleged false and misleading proxy statements had undervalued the Nordstrom family's use of private aircraft.  The company succeeded in establishing that independent directors had overseen the arrangements, and submitted an expert report substantiating its valuations.  Executive usage of corporate aircraft remains a sensitive, complex practice.  

Overview of Rules

1.  Plane or Helicopter Usage

(a)        Providing a company plane or helicopter or reimbursing an executive for plane or helicopter usage is not a perk in the following circumstances:

                                (i)  Any trip to or from a business meeting, business dinner or business event, regardless of where the trip originates. 

                               (ii)   Note that if the travel includes both business and personal purposes, an analysis should be undertaken to determine whether there is any incremental charge for the personal aspect of the trip.

(b)       Providing a company plane or helicopter or reimbursing an executive for plane or helicopter usage is a perk in the following circumstances:

                                (i)   Any trip for personal travel.

                               (ii)    Any travel for the executive’s family, friends or acquaintances. 

                              (iii)    If the executive is on a business trip, costs associated with a spouse, other family members, friends or acquaintances who attend that trip for social reasons is considered a perk.  This is the case even where a spouse attends the trip to accompany the executive to business functions, unless the spouse is performing business that is necessary and integral to the Company’s business.  If the spouse attends a business function simply because other spouses are attending and/or for the purpose of helping the executive entertain socially, it is still considered a perk.

2.  Calculation of Aircraft Perq

(a)        Instruction 4 to Item 402(c)(2)(ix) requires that the information pertaining to the methodology for computing the aggregate incremental cost of disclosable perquisites be disclosed in the relevant footnote to the Summary Compensation Table. The SEC has not generally issued rules or guidance about the calculation of incremental cost for aircraft travel, which in my experience generally warrants tracking what other companies disclose. I have not rolled my research forward recently, but below  are some past excerpts. Just let me know if a sampling of 2012-2013 disclosures would help.

(b)        2010 COKE 14A  "Coke Consolidated owns and operates one corporate aircraft to allow employees to safely and efficiently travel for business purposes. The corporate-owned aircraft allows employees to be more productive than if commercial flights were utilized, as the aircraft provides a confidential and productive environment for conducting business without the scheduling constraints imposed by commercial airline service.  . . . Depending on availability, family members of executive officers are also permitted to ride along on the corporate aircraft when it is already going to a specific destination for a business purpose. This use has no incremental cost to Coke Consolidated.

The incremental cost of personal use of company aircraft is calculated based on the average cost of fuel, crew travel, on board catering, trip-related maintenance, landing fees and trip-related hanger and parking costs and other similar variable costs. Fixed costs that do not change based on usage, such as pilot salaries, home hanger expenses and general taxes and insurance are excluded from the incremental cost calculation. If an aircraft flies empty before picking up or dropping off a passenger flying for personal reasons, this "deadhead" segment is included in the incremental cost of the personal use."

Also reported as a quote from a Coke proxy statement: “When the aircraft is already flying to a destination for business purposes, only the direct variable costs associated with the additional passenger (for example, catering) are included in determining the aggregate incremental cost to the Company. While it happens very rarely, if an aircraft flies empty before picking up or after dropping off a passenger flying for personal reasons, this “deadhead” segment would be included in the incremental cost.”

(c)        2010 -- J.C. Penney Company proxy statement (at page 30): " For total compensation purposes, we calculate the aggregate incremental cost to the Company of personal use of the Company aircraft by determining the incremental nautical miles flown, including any "deadhead" legs, and multiplying that number by the cost to the Company per nautical mile. A nautical mile is a unit of length used for maritime and aviation purposes. The cost per nautical mile is based on published industry data for each of the airplanes owned and operated by the Company. The cost per nautical mile excludes fixed costs which do not change based on usage, such as pilots' or other employees' salaries, purchase costs of the aircraft, or non-trip-related hangar expenses. It is derived from the aircraft's variable operating costs, which include: - Aircraft fuel expenses; Supplies and catering; Crew travel expenses; Landing and parking expenses; and Aircraft maintenance and external labor.”

(d)           2008 Conoco Phillips: Numbers above represent the approximate incremental cost to ConocoPhillips for personal use of the aircraft, including travel for any family member or guest. Approximate incremental cost has been determined by calculating the variable costs for each aircraft during the year, dividing that amount by the total number of miles flown by that aircraft, and multiplying the result by the miles flown for personal use during the year. Included in incremental costs reported are $0 associated with flights to the Company hangar or other locations without passengers, commonly referred to as “deadhead” flights.

3.  Proxy Statement Disclosure (Generally)

     (a)    2014.Jun.23  Extensive Disclosure byLiberty Media.
    (b)  2015.Mar.23 ebay's Extensive Disclosure - see ebay's Proxy Statement