Page 276 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

262 The Complete Guide to Executive Compensation

variable costs. Not surprisingly companies are either canceling personal use or moving to a
full cost model. The SEC meanwhile apparently is requiring that the aggregate incremental
cost (including fuel and landing fees) be the basis for determining the value extended.
Regardless of the method selected, one should carefully review the tax consequences.
Companies not interested in maintaining a corporate aircraft program may opt to par-
ticipate in a fractional jet ownership program. For an up-front, one-time acquisition fee, a
monthly maintenance fee, and an hourly fee, the company can call up a jet when needed for
a specified time period (e.g., five years). The fraction of ownership selected is based on the
number of hours one expects to fly. It may start as low as 1/16 and represent 50 hours. Such
leasing arrangements may be with airline companies or with other companies wishing to
lower the cost of maintaining their own aircraft.
While companies once proudly displayed their company name and/or logo on aircraft,
disapproval from shareholders spotting the planes at resort communities or prominent
sporting events (such as the Super Bowl) has put a damper on the practice.
Another big advantage of corporate aircraft (vs. commercial) is not having to go through
the time and inconvenience of airport security. Some companies use security and convenience
as a rationale for mandating CEOs use corporate aircraft for both business and personal use.
The intrinsic more than the extrinsic value of company aircraft probably gives this a high
executive rating.
If an executive or family member is seriously injured (or incurs a major medical problem
such as a stroke) and he or she needs to be evacuated by air (if not near a quality medical
facility), rather than take on such a responsibility, companies may choose to insure their
executives (and families) with companies that specialize in providing such services.

Ships and Boats. The complement of the corporate jet is the company yacht. By necessity,
this is more restricted in use than aircraft if for no other reason than the requirement of prox-
imity to water. Determination of basis, if any, for income is the same as for corporate aircraft.
Unfortunately, the 1978 Revenue Act bars company deductions for maintaining a yacht.
Presumably, business entertainment on the craft (e.g., catering) would be deductible.
Cruise ship expenses for conventions, seminars, or meetings under certain circumstances
may be deductible, but a significant amount of written documentation is required under
Section 274(m) of the IRC. Due to all the restrictions, ships and boats are of moderate
importance, at best.
Travel and Entertainment

Paying for travel and entertainment expenses incurred on behalf of the company due to
business responsibilities is a traditional benefit. While hypothetically this is applicable at all
organization levels, it has its greatest application at sales and executive levels. The IRS and
Congress continue to peck away at this benefit in the belief that all executives have three-
martini lunches (including an expensive, exquisite meal) and charge it off as a business expense.
For the expense to be at least partially tax deductible to the corporation and not an income
item for the employee, the expense must be demonstrably incurred while conducting business.
Furthermore, an expense while on the road or anything in excess of $25 requires a receipt indi-
cating date, who was in attendance, the business purpose of the expense, the nature and
amount of the expense, and where the expense was incurred. (The $25 requirement has been
in effect for a number of years and, unless eventually raised, will one day require a receipt on
a cup of coffee.) When the reimbursed employee owns more than 10 percent of company