The one ceo perk that’s not fading away – the washington post
Making sure the CEO gets an efficient, comprehensive, A-to-Z check-up could mean it’s less likely something will be missed. But one perk that has stuck around, and even grown more common, say executive compensation consultants, is the executive physical. The often deluxe check-up allows busy top managers to see a range of doctors and get a battery of tests performed at one time, whether in top-notch medical centers like the Mayo Clinic or luxurious digs such as Canyon Ranch. This new rule could reveal the huge gap between CEO pay and worker pay “The board or the company would
have no right to the employee’s protected health information under HIPAA and other privacy rules,” said Robin Schachter, a partner in the tax and executive compensation group of Akin Gump. “CEOs’ health is material,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, in an interview. And in the grand scheme of executive compensation, “it’s just not very much money. M ore important, it’s totally relevant.
” One thing’s for sure: the CEO’s job is only getting more stressful. The globe-trotting nature of the job, the 24/7 hours and the intensity of the work are bound to put more and more pressure on CEOs’ health. As former IBM CEO Sam Palmisano told On Leadership last year, his doctor saw real improvements in his health about a year after leaving the CEO job. A report by Hay Group found a similar trend in its study of the 300 largest companies, with 40 percent offering the perk in 2014, up from 38 percent in 2009. An updated report has not been released, but Mustich says the number has remained roughly flat, with about 30 percent offering the perk in 2015, though that number is based on a different sample of companies, the S&P 500. So what information do boards get about CEOs’ health? Recruiters say that executive physicals are not at all common when companies are hiring CEOs. But incoming executives may be asked about it: Open-ended questions might be directed to a candidate about his or her health history, and employment agreements often refer to the appointed CEO acknowledging a clean health history, said Korn Ferry Vice Chairman Steve Mader, in an email. Providers of executive physicals report mixed results on their business.
Canyon Ranch global sales director Molly Anderson said that inquiries from corporations are up. But they’ve also seen a shift in their business, with more interest in a shorter, two-night program ($4,355 plus the cost of accommodations) and in a less expensive program that focuses on customized wellness issues for executives ($1,615 plus accommodation costs). Still, she said in an interview, “w e’re seeing an uptick in companies wanting to invest in their executives.” The typical corporate director now makes a quarter million dollars a year “You don’t realize it at the time, because you just do it,” he told On Leadership’s Lillian Cunningham.
“You grind away. Everyone wants the organization to be successful, so you work hard. But you forget how much of that you internalize and how much stress it puts into you, and the effects it has on your health over time.” Still, how much the perk will continue to stick around isn’t completely clear, as a result of changes to the law under the Affordable Care Act. G uidelines aren’t yet available, but lawyers believe the exception which currently allows companies to pay for high-end diagnostic exams and tests for executives — as long as no treatment is involved — will continue. Where they might run afoul of the new changes, meanwhile, is if the cost of these enhanced physicals brings an executive’s total benefit high enough that it triggers the Cadillac excise tax, said James Napoli, a partner in the employee benefits practice at Seyfarth Shaw. James Tuck, manager of the Scripps Executive Health program in San Diego, said they’re not seeing a drop off in returning corporate patients, but they have seen a little more reluctance and caution from potential customers. While Anadarko’s cost may be higher than that of many executive physicals — the median value of an executive physical in 2014 was $2,200, and others companies cite amounts such as $2,700 and $6,406 for the CEOs at Dunkin Brands and Lowe’s, respectively — they still pale in comparison to the cost of benefits like private air travel that tend to raise investors’ hackles. “It’s the difference between a pop quiz and a take-home exam,” said David Wise, U. S. market leader for human resources consulting firm Hay Group, describing the difference between a regular physical and the exhaustive nature of such VIP check-ups. “T hey pick up things you wouldn’t always expect.” (United’s 2015 proxy, released before Munoz became CEO, shows the company paid for executive physicals; a spokesperson said the company was not disclosing whether Munoz had one.) The Canyon Ranch Resort in Tucson, Ariz., offers an Executive Health Program.
(Photo courtesy of Canyon Ranch Resort) In 2008, according to data from the consulting firm Willis Towers Watson, roughly 22 percent of companies in the Fortune 500 said they paid for the perk. By 2013, 32 percent of companies disclosed offering it — and it was the only benefit that grew significantly over those five years, the firm reported. The reasons they remain, then, are two-fold. The most obvious one is that a CEO’s health is a huge risk factor. Consider what happened when, just one month after taking the top job at United Airlines, Oscar Munoz was hospitalized after suffering a heart attack. It came in the wake of a corruption probe at the airline that caused his predecessor to resign, and the stock fell three percent before recovering.
“Companies are watching how they spend their benefits dollars,” Tuck said. The standard program at Scripps involves a day-long visit that includes visits with an internal medicine doctor, a skin cancer screening with a dermatologist, a range of heart tests, and nutritional, stress and exercise counseling. It runs $3,070 for men and $3,700 for women.
Indeed, consider the CEO of Anadarko Petroleum, R. A. Walker, who was reimbursed $15,868 for the cost of an executive physical in 2014, its proxy states. A spokesperson for the company said in an email that the physicals were “intended to be thorough, relatively low-cost and preventive actions to help ensure early detection and protect the interests of our shareholders.” Why has this perk held strong? After all, it’s not like executives can’t afford to pay their own way: With median CEO pay reaching $13.6 million in 2015, according to some estimates, $5,000 for a VIP medical visit is pocket change for many top executives. Meanwhile, it’s not as if boards are getting an inside look at the CEO’s health in return: Though CEOs might elect to share the findings of the executive physical, privacy regulations mean the board doesn’t necessarily get to see the results.
Like On Leadership? Follow us on Facebook and Twitter, and subscribe to our podcast on iTunes. Meanwhile, good governance advocates say it’s expected that the CEO would share alarming issues they learn about with the board. “I think a good CEO is going to be candid,” Elson said. ” If they find something materially wrong, I think [the CEO] has got to report it.” An interim CEO was installed, and then a few months later, when the company announced Munoz had heart transplant surgery, the stock slipped again. He has returned home and is expected to return to the job early in the second quarter of 2016, the company has announced.
That could cause some companies to stop offering them, he said, while others could simply decide to pay it. “E ven if they do trigger the tax, the tax would be somewhat minimal and I think the companies see the value in assuring the executives are healthy,” Napoli said. The other reason boards continue to offer them is that disclosing the cost of the physical in their proxies lets companies telegraph to investors how much they’re prioritizing the CEO’s health. ” That’s probably why it’s one of the few perks that large companies haven’t really let go of,” Wise said. “W hat they’re really buying is shareholder confidence.” “When you look at executive perquisites over the last five to seven years, companies really pared back,” said Rob Mustich, East Coast managing director of executive compensation for Willis Towers Watson, in an interview. “But the executive physical is one perk that remains common.
” Since 2006 — when the Securities and Exchange Commission began requiring companies to disclose more detail about executive compensation — the perks of top managers have been under attack. And under pressure from investors and the fear of embarrassing optics for companies, many have quietly vanished.
Country club memberships have all but gone the way of the three-martini lunch. Allowances for company cars? So very 2005.