Most workers at the South Street Seaport must reach into their own pockets to pay taxes. That’s not so, however, for the CEO of the unprofitable downtown entertainment complex.
Last year Seaport Entertainment Corp. paid $120,000 to cover the tax bill incurred when the movers were called and Chief Executive Anton Nikodemus relocated to New York from Las Vegas. This perk, known as a tax gross-up, was in addition to the CEO’s $14 million in total compensation last year that consisted of $1.3 million in salary, a $1 million cash bonus and the rest in shares. The payments to Nikodemus were disclosed in Seaport’s annual proxy filing released last month.
Gross-ups are among the most controversial CEO perks because they can be quite expensive. When a company picks up the tab for taxes on an executive perk, the payment is treated by the IRS as additional income that must be taxed as well. The upward spiral doesn’t end until the amount of the reimbursement approaches zero. Seaport’s $120,000 gross-up payment to Nikodemus, which included payments for taxes on his long-term disability insurance, stemmed mostly from the $200,000 cost of moving him east.
Investors have opposed gross-ups for years, arguing they’re an abuse of shareholder money. Companies “are removing taxes from the list of inevitable life experiences, leaving only death,” a critic told the Wall Street Journal in 2005. In 2009 the Obama administration banned gross-ups at any company that accepted bailout money under the Troubled Asset Relief Program, or TARP.
Companies argue tax gross-ups are necessary to attract and retain talent. A report from pay consulting firm Semler Brossy noted that a manufacturer, Eaton Corp., explained that it approved gross-up payments so top executives would “avoid adverse financial impact.”
Most companies have done away with gross-ups, yet they endure. A search by Crain’s Friday of recent proxy filings revealed companies paying gross-ups include Autodesk, BJ’s Wholesale, Domino’s Pizza, DoorDash, and Lululemon Athletica.
American Airlines paid $15,000 in gross-ups to cover flight privileges granted to CEO Robert Isom. MicroStrategy paid $125,000 in gross-ups to chairman and former CEO Michael Saylor to cover taxes associated with $356,000 worth of personal flights on company jets and $300,000 for personal security. Saylor, a prominent Bitcoin fan, took $1 in salary.
Some companies provide gross-ups for only certain costs. For instance, Midtown-based software company MongoDB paid gross-ups for top executives’ food vouchers, which are also offered to all U.S. employees. The company said in a filing that it doesn’t pay “excessive” gross-ups.
TripAdvisor and Dollar Tree say they pay gross-ups associated with executive relocation costs only.
Seaport Entertainment was spun off last year by developer Howard Hughes Holdings, and its former parent paid $24,000 in gross-ups to its CEO in 2023, a filing shows. In addition to the $120,000 in gross-ups to the CEO last year, Seaport paid about $24,000 in gross-ups mostly related to the $40,000 cost of moving Chief Financial Officer Matthew Partridge to New York.
Since its spinoff last summer, Seaport Entertainment has struggled. The company posted a $42 million net loss in the fourth quarter on flat revenue of $23 million, dragged down in part by the unprofitable Tin Building food hall. Management has announced plans to sell the vacant lot at 250 Water St., a spot it had long hoped to develop into an apartment building. Its stock price has fallen to $19.50 a share from $31.
In addition to the South Street Seaport complex, the company owns a 25% stake in Jean-Georges Vongerichten’s restaurant company. It has been tapped by Bryant Park management to replace the Bryant Park Grill, whose lease expired April 30, but no final agreement has been reached. The grill has sued to stay in place and continues serving customers.
Seaport Entertainment, which reports quarterly earnings on Tuesday, didn’t reply to a call or two email messages seeking comment.
