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The CEO Real Estate ScamThe newest infuriating perk for corporate executives.

By Michelle Leder
Posted Thursday, Aug. 24, 2006, at 11:55 AM ET

What with low housing starts, declining builder confidence, soft sales of existing homes, growing inventories, and surging foreclosures, anyone looking to sell a house these days is likely to be a bit stressed out. Except for top executives at big public companies. Yes, the executives who were first in line with jets, sweetheart loans, stock options, and repriced stock options have now devised the first post-real-estate bubble compensation trick. They've figured out how to shelter their own houses from the declining real estate market—by getting their corporations to guarantee their sale price. You may be sweating that you have to sell at a loss, but your CEO isn't.

Since the beginning of this summer, at least a half-dozen companies, including eBay and Nike, have disclosed in their routine Securities and Exchange Commission filings that they're now protecting their executives from real estate market forces. The terms in the filings vary—"protection against loss"; "loss protection"; and "price protection"—but the meaning is the same: They are essentially guaranteeing that executives' homes will sell for a good price. In other words, companies that depend on free markets are making sure their own executives are safeguarded from them. In the past, companies often offered to buy a relocating executive's house if didn't sell after a specific amount of time. But that's different than the price guarantees being offered now.

Perhaps the most ironic example comes from Orleans Homebuilders, which constructs thousands of homes a year in eight states. In this employment agreement, Orleans disclosed that it was offering Executive Vice President C. Dean Amann II "price protection" on the sale of his current home, a five-bedroom, five-bath house between Denver and Colorado Springs that is listed at $699,000. Amann bought the house in 2000 for $619,000, according to Douglas County tax records. Orleans was promising that if Amann sold his house, it would make sure he got at least 97 percent of its appraised value—a good deal in this bubble-popping moment. A spokeswoman for Orleans didn't return my calls, so I can only guess that the company does not offer a similar program to its any of its customers, who will bear the brunt of falling prices as the real estate market tanks.

Last month, eBay disclosed a $700,000 "supplemental relocation allowance" for new CFO Bob Swan, who was moving from Plano, Texas, to a home closer to eBay's headquarters in San Jose, Calif. If Swan's Texas house sold for less than $3 million, eBay would make up the shortfall, up to to $700,000. (This was on top of more traditional relocation assistance—typically commissions and closing costs, moving expenses, house-hunting trips, and even temporary housing—commonly offered to executives.) Swan's six-bedroom, seven-bathroom house, which listing broker Cindy O'Gorman said cost around $3.3 million when it was built in 2002, was listed for $2.7 million and was on the market for about 60 days before going under contract two weeks ago, according to O'Gorman. She declined to provide the selling price because the deal has yet to close, but O'Gorman said the new buyers were aware of eBay's promise to make sure Swan did well. An eBay spokeswoman declined to respond to questions about the deal.

Earlier this year, Nike spent $3.1 million to purchase the Portland home of former CEO Bill Perez—the same amount that Perez paid for the home nearly a year earlier, according to city tax records. Nike also disclosed in its recent proxy statement that it reimbursed Perez for $578,000 to cover the cost of renovating and furnishing the home, which listing broker MJ Steen says includes three plasma TVs, an antique secretary, and a wine cellar capable of holding up to 2,000 bottles. The five-bedroom, four-bathroom house built in 1908 is currently listed at $3.99 million.

The real estate protection trend is still new and rare. Two compensation consultants I reached said they hadn't yet seen this in their own practices, but here's a bet that it's only a matter of time before this particular perk catches on.

"If the market continues to soften, you're probably going to see this become more of a negotiating tool for executives," says Steen. "I can imagine executives turning to their companies and saying, 'Who is going to make the hurt go away?' "

The rest of us homeowners—those without a corporate sugar daddy to bail us out—will remain subject to the normal market forces of supply and demand.

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Michelle Leder writes a daily blog at www.footnoted.org that looks at SEC filings and is the author of Financial Fine Print: Uncovering a Company's True Value.
Photograph of mansion on Slate's home page by Justin Sullivan/Getty.
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