Directors’ Charitable Gift Programs Get Axed

Directors’ charitable gift programs are ending up on the chopping block as companies face more public attention on the benefits executives and directors receive.

General Mills, Countrywide Financial, Home Depot and Becton, Dickinson & Co. have all revealed that they either discontinued or significantly trimmed their charitable gift programs for their directors. (See bottom of the page for details.)
Now that the SEC is requiring unprecedented disclosure of director pay, companies are eliminating elements of director compensation that could create problems with shareholders or attract negative media attention. Indeed, part of the problem with charitable gift programs is that they provide a clear benefit for the director, but not so much for shareholders or the company.

“I would have suspected this,” says Robin Ferracone, executive chairman of Farient Advisors, a compensation consultancy that is part of RAF Capital. “It’s part of a longer-term trend to scale back anything having to do with director pay that is not totally transparent and not compensatory for his or her director services.”
There are generally two types of charitable giving programs offered to directors. One is a matching gift plan in which the company matches the directors’ gift up to a certain amount. Many of those plans have been trimmed in terms of the amount of the match the company is willing to offer on the directors’ behalf. The other type of plan is a company-owned life insurance plan in which the company takes out policies on behalf of the director and pays the premiums. Upon the director’s death, the company recoups the payments made on the premiums and donates the rest to a charity of the director’s choice in his or her name. The company gets the tax write-off and the director gets the accolades.

Mark Borges, a compensation consultant with Compensia, estimates that approximately 30% to 40% of boards offer some kind of matching contribution program for their directors. But he suspects that percentage will shrink in the coming years. “I guess under the circumstances and tighter economic environment it doesn’t surprise me to see some companies scaling back,” he says.

The cuts also come as executive compensation faces growing scrutiny from the media, politicians and investor groups. Charitable giving has long been a prickly issue from a corporate governance standpoint and some corporate governance advocates argue it can undermine a board’s independence. In fact, in a 2003 ruling, Leo Strine, vice chancellor of the Delaware Court of Chancery, ruled that a committee of Oracle’s board was not independent as a result of the company’s charitable giving. The reason? CEO Larry Ellison and Oracle contributed significant dollars to Stanford University and the committee in question included two Stanford professors.

Along those lines, in recent years companies such as Lockheed Martin, Fortune Brands, ConAgra and PPG Industries have all decided to phase out their charitable gift programs for their boards. General Mills and We Energies recently joined those companies in cutting out the benefit.

Overall, perquisites for executives, and especially directors, are being phased out. Some of that is likely the result of the SEC’s new compensation disclosure rules, which were in place for the first time last year. Now the value of perquisites provided to the board faces the light of day under a new “all other compensation” column just for directors. Directors and comp consultants say that is contributing to the demise of things like jet perks for board members.

Nevertheless, Paul Dorf, a consultant with Compensation Resources, says his firm has occasionally recommended that compensation committees add charitable contribution programs because they do not cost much money to implement, they provide a healthy tax cut for the company, and the director or executive feels as if he or she is being rewarded. Still, he says, the cutbacks on the programs are understandable.

“Because companies are doing poorly and shareholders are taking it on the chin,” he says, “it adds salt to the wound to give big benefits to a board member or executive who is making money when shareholders are not.”

Charitable Gift Programs Bite the Dust

Company	Type of Program	Action Taken
General Mills	Program is funded by life insurance policies that donated $1 million in each directors’ name	Program discontinued for all directors elected during or after fiscal 2007
We Energies	The program granted $100,000 in the director’s name for 10 years following their death	Program discontinued for all directors elected during or after fiscal 2007
Home Depot	Company match on directors’ charitable donations	Effective 2008, company match is cut from $100,000 to $10,000 annually
Countrywide Financial	Company match on directors’ charitable donations	Match cut from $10,000 annually to $5,000
Becton Dickinson	Company match on all employees’ charitable donations	Match cut from $10,000 annually to $5,000