AIG bailout, companies cancel business retreats, companies save money on business retreats
Mary Altaffer/AP
A worker replaces letters on the American Express sign at the financial services company world
headquarters building in New York. (AP)

Amid Bailouts and Bankruptcies, Companies Cut Corporate Luxury

February 10, 2009 01:06 PM
by Rachel Balik
Across the board, big corporations, especially those receiving government funding, are canceling business retreats and other superfluous expenses.

Hold the Caviar, This Is a Business Meeting

For years, top employees were rewarded with upscale vacations in the guise of business trips and retreats. But even companies not receiving federal bailout money are trimming their budgets these days, and extravagant corporate retreats have been the first perks to get cut. Cancellations and cutbacks on such trips have been so dramatic that hotels and resorts are panicking about the backlash that new temperate spending will wreak on the travel industry.

Some companies have continued with events that have a necessary purpose, such as business trips, but many are cutting back. The New York Times reports that outerwear manufacturer The North Face recently had its employees camp out in tents on a recent retreat to save money on hotel rooms.

The cuts are about more than saving money—they’re also about saving face. Few companies are eager to join the list of those that have been singled out for extravagant or luxury spending.

Struggling financial corporation Citigroup has received significant criticism recently for expenditures that many people see as unnecessary. At the end of January, Reps. Dennis Kucinich, D-Ohio, and Ted Poe, R-Texas, joined a growing chorus of public critics of Citigroup’s $400 million deal to name the New York Mets’ new home stadium Citi Field, when they sent a letter to Treasury Secretary Timothy Geithner asking him to dissolve the deal.

“It’s just totally unacceptable that Citigroup should be able to spend $400 million in naming rights when they’re the recipients of a massive federal bailout,” Kucinich said, according to Newsday.

Background: The AIG retreat

The close scrutiny of corporate spending first arose in the wake of the AIG bailout in the fall of 2008. Soon after the insurance giant received billions in government loans, executives went ahead with a scheduled executive retreat in California. The company ran up a tab of $440,000, and U.S. News & World Report published the invoice from the controversial AIG retreat, provided by the House Oversight and Government Reform Committee. The retreat included over $20,000 in spa treatments for the executives.

Related Topics: Cutbacks on corporate spending

At the end of last year, many companies cancelled their holiday parties to save money in the face of the recession and budget cuts. In 2008, one in five companies called off or cut back on holiday celebrations. Companies that had laid-off a significant percentage of their staff, such as American Express, felt particularly disinclined to celebrate. With the economy worsening, many companies felt the need to preserve funds.

Marc Jacobs was one of the companies that decided to scale back on the holiday party, and other designers have made even more of an effort to save money by canceling their Bryant Park booths at the 2009 New York City Fashion Week. The Telegraph reported that Vera Wang, Betsey Johnson, and Carmen Marc Valvo all elected not to have tents or the associated catwalk shows that run $100,000-$750,000. Although designers typically sell to wealthy clientele, everyone is deeply affected by the downturn. The rich can no longer afford their extravagances, designer clothing included.

Still, for the formerly high paid bankers, learning to live with less will not be an easy adjustment. A recent New York Times article broke down the yearly spending of the average New York City banker, accustomed to earning four or five times the $500,000 cap mandated by the government for companies receiving federal funds. The article suggested that the lifestyle change would have to be quite dramatic for families used to employing drivers, spending $1500 a month on groceries and $15,000 on gowns for events—never mind the $30,000 annual tuition for a child in a private school.

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