Fortune 500 Reveals!
How much does a CEO's safety cost a company?
There's plenty of upside to being a Fortune 100 CEO, but the power also comes with a major downside: it can come with all sorts of threats to personal safety.
Scenarios that could endanger a CEO range from the macro—a defense company’s manufacturing of drones could make its CEO a target of the Islamic State, says Timothy Horner, head of Kroll’s security risk management practice—to the micro, a “crazy niece or nephew,” Horner says.
Not only do those threats pose danger to individual executives, but such events could be devastating for a company’s financial health. So it’s no wonder that some of the nation’s most prominent companies pay a pretty penny to ensure their leaders stay out of harm’s way.
Which company shells out the most?
According to analysis of Fortune 100 data in the upcoming 2014 Benefits and Perquisites Report by Equilar, which tracks executive compensation, it’s Amazon. The online retailer paid $1.6 million in 2013 for security perks for founder and CEO Jeff Bezos, whose personal worth totals an estimated $28 billion.
What kind of security can that much money buy?
Amazon isn’t telling. A spokeswoman did not respond to Fortune’s request for comment and the company’s mention of the expense in a 2014 SEC filing describes it in vague terms. The $1.6 million sum “represents the approximate aggregate incremental cost to Amazon.com of security arrangements for Mr. Bezos in addition to security arrangements provided at business facilities and for business travel.
We believe that all company-incurred security costs are reasonable and necessary and for the company’s benefit.” Amazon goes on to justify the hefty sum by pointing to Bezos’ relatively low CEO salary of $81,840 and the fact that he’s never received any stock-based compensation.
Of course, Bezos is far from the only exec whose security costs big bucks. Oracle spent $1.5 million on security for Larry Ellison, who recently stepped down as CEO of Oracle but will serve as executive chairman and chief technology officer of the business software company.
In an SEC filing, the company said that the $1.5 million went toward security-related costs and expenses for Ellison’s “residence.” The Oracle founder is known for his extravagant real estate purchases, including nearly an entire Hawaiian island in 2012.
The filing says that Oracle’s board of directors requires that Ellison have a home security system for his primary residence, including security personnel. “We require these security measures for Oracle’s benefit because of Mr. Ellison’s importance to Oracle, and we believe these security costs are appropriate and necessary business expenses.”
The filing says that Ellison paid for the initial procurement, installation, and maintenance of the security equipment and Oracle covers the annual staff costs.
Disney spends the third most money for CEO security, according to Equilar, paying $584,075 to protect CEO Bob Iger, followed by the $385,606 Berkshire Hathaway shells out for Warren Buffett’s safety, and the $320,428 that FedEx pays to ensure that Fred Smith is kept out of harm’s way.
All told, the Fortune 100 spent a median of $28,618 on CEO security perks in 2013, down from $58,600 the year before. That year-over-year change is drastic but comes with some caveats.
It doesn’t include security related to air travel, so if a CEO is required to fly on the corporate jet for safety reasons—even for personal travel—that cost is not factored into Equilar’s analysis of a company’s overall CEO security spending.
A company is required to disclose the cost of executive perks only if they exceed $10,000, so analyzing a year’s worth of security costs for the entire Fortune 100—which changes year to year—will always include the largest expenditures but often leaves out the lowest.
It’s also worth considering one-time expenses, like the installation of a security system, that may inflate a given year’s spending, says Aaron Boyd, director of governance research at Equilar. Similar fluctuations have cropped up in Equilar’s data before. The average cost of Fortune 100 CEO security perks jumped from $22,000 in 2004—the first year Equilar started keeping track of these expenses—to $37,000 in 2005 only to drop down to $26,000 in 2006.
CEO security spending reached its peak in 2010, when the median totaled $85,425—a figure Boyd says may be attributed to companies updating or reviving security protocols after cutting back during the recession.
While the amount companies spend on CEO security varies from year to year, the percentage of Fortune 100 companies that provide personal and home security to their chief executives has held steady, fluctuating only slightly in the range of 45% to 54% over the past five years.
Here are the Fortune 100 CEOs of public companies that received a security perk based on proxy filings last year. (There are 10 companies that acknowledge CEO security costs, but don’t disclose how much they spend.)
A $1.6 million security budget like the one Bezos enjoys is generous, says Alan Schissel, a former New York City Police Department sergeant who’s now president and CEO of Integrated Security Services, Inc., a private investigation and executive security firm.
But protecting a high net worth individual who’s in charge of a big-name company is an expensive endeavor. Based on Schissel’s conservative, back-of-the-envelope calculations, a team of four rotating security agents would cost about $18,000 per week.
A two-man back-up team to be deployed in the event of a heightened threat or emergency will run about $4,000 per week. A vehicle and related maintenance will cost $30,000 per year, and extraneous local expenses could total about $10,000 annually.
If a company supplied all that to its CEO, it would cost just under $1.2 million per year. The company could spend the surplus on a CEO’s residential security systems.
Outfitting a home larger than 15,000 square-feet with surveillance and alarms starts at $25,000 and can exceed $50,000 if a non-traditional access application, like facial, iris, or fingerprint recognition, is used to secure a property, Schissel says. (Bezos reportedly owns a shorefront mansion near Seattle that measures some 29,000 square feet.)
Horner says that half of Kroll’s corporate security business comes from companies’ and CEOs’ just-in-case concerns. The other half is based on active threats. Threats can come from outside a company—like the Islamic State example—or internally.
Downsizing and offshoring efforts, labor conflicts, or one particularly disgruntled employee can trigger extra safety precautions, Horner says.
Just how much security a CEO requires often comes down to the individual’s “own fears and perception of being liked or disliked,” Schissel says, and how much shareholders value the CEO as a company asset.