U.S. Bank, through a partnership launched last month with luxury card services provider Stratus Rewards, is courting C-level management with an invitation-only, high-end commercial card through which points accumulated by corporate cardholders are forwarded to the primary account of the corporate officer.
Offering prestige and upscale perks from personal concierge services to private jet use, U.S. Bank and Stratus Rewards are targeting small and midmarket companies. Stratus Rewards said it already has signed corporate clients through U.S. Bank—its exclusive bankcard-issuing partner—ranging from small to large companies in addition to individuals using a similar consumer product, but would not disclose names or numbers.
"The criteria tend to be organizations that are owner/proprietor-managed, with an owner who currently flies privately or would like the opportunity to fly privately," said Alison Chittum, president and CEO of Stratus Rewards. "They tend to be law firms, accounting firms, businesses where the owner is very active." Chittum added that clients must spend at least $400,000 per year through the cards registered with the program.
While an officer will get the Stratus Rewards card and its associated perks, U.S. Bank will provide its Visa-branded OneCard at a cost of $75 each to employees "for faster point accumulation to the primary cardholder," according to a statement.
The cornerstone of the program is the ability to redeem points for private jet flights—a first in card rewards programs, according to Stratus Rewards. The bonuses also include a slew of high-end goods and services for the primary cardholder.
"Roughly, it's a 1 percent cash-back model, so it's a point for every dollar spent," Chittum said. "We have merchandise opportunities where you redeem points for as little as 3,000 points. When you're talking about jet travel, that starts at 195,000 points per flight hour and that's for a Citation XL, which seats up to eight people. That goes up to a G4, which is the largest jet that we offer, for roughly 1.3 million points per flight hour."
While it would take excessive spending by a single cardholder to gain private jet rewards, the average midmarket company in 2002 spent more than $13 million in travel and entertainment alone (BTN, June 23, 2003), which would yield nearly 67 flight hours on a private jet annually.
The card brings to mind such upscale offerings as American Express' exclusive Centurion card—also known as the Black Card, which has captured the imagination of the jet set with its 24-hour "personal assistance" or concierge service, access to executive airport lounges and airline miles.
American Express said Centurion is a consumer offering without a strong corporate tie-in. When asked if Amex ever has used the Centurion to sweeten the deal when going out to bid by offering it to a CEO or executive in return for a signature, a spokesperson said, "All I can say is the Centurion card is by invitation only, it's a very highly prized product and we're not going to comment on how someone gets invited."
However, John Ohaver, vice president at Norwalk, Conn.-based consulting firm Management Alternatives, said, "They certainly would. If a corporate travel manager of a major client says, 'I need a Centurion card for my boss,' it gets done."
Although luxury travel tie-ins have yet to find a niche in the corporate card space, Stratus Rewards said it is off to a good start. "We knew that this would resonate well with people who are passionate about private travel," Chittum said. "We've already hit our three-month projection for membership."
While travelers may cringe at the thought of their bosses using their points to fly private jets and stay in presidential suites, Stratus Rewards said the points can be transferred to anyone within the organization, and travelers can retain any points they accumulate with separate airline loyalty programs. "It's up to the primary cardholder how the points are distributed within their organization," Chittum said.
Yet, situations in which a contract signatory gets personal benefits from company resources treads on shaky ethical ground, according to some.
"There are ethics involved in this," said Earl Foster, president of Princeton, N.J.-based Partnership Travel Consultants. "I've seen programs where the company gets points for this stuff and that's fine. They redeem the points for company travel and they have controls in place, but for the signatory to get points, I think that can cross the line."
In fact, American Express last year launched its Business ExtrAA program with American Airlines where companies earn points for travel awards in a company-level loyalty program. Through the program, companies accumulate free tickets, upgrades and airport lounge access for corporate travel
(BTN, June 23, 2003). The difference with the Stratus Rewards program is the benefits go to the executive, not the company.
"I would have a real problem with that," said Colleen Guhin, ON Semiconductor strategic sourcing manager for travel and telecommunications, who hosted a panel on ethics at the Association of Corporate Travel Executives conference in Orlando last month. "The travelers are the ones taking the trips and accumulating the points or the miles, and the executives can use them for their own personal use. It's almost like a kickback."
In an era of enhanced corporate governance spawned by the indiscretions of high-profile companies, corporate officers have come under increased scrutiny. While Sarbanes-Oxley addresses the issue of using company resources for personal benefit
(BTN, Jan. 19, 2004), the card program is not necessarily a violation of the law, according to Ohaver.
"You're not going to find this in too many true Sarbanes-Oxley companies," he said. "You'll find this in owner-run, smaller businesses, where one person runs the whole thing. There really isn't a problem with it. The thing with Sarbanes-Oxley is you write a policy, you stick with the policy. The personal loan to an officer clause doesn't say you can't do it, it asks how do you track it if this is an officer who is taking rewards for personal benefit."
Foster said the practice among vendors that throw in personal benefits to sweeten a business deal is not a common occurrence in the industry. "In the past, way past, I've seen the airlines doing some of that but not like this," he said.
Yet, Guhin said such practices are not anomalous in the business. "Given our industry and how it operates, it wouldn't surprise me at all," she said. "Call them signing bonuses, call them all kinds of things, but it goes on all the time."