Executive Perks Today
Executive compensation in the eyes of shareholders and outside observers is a complex, intriguing subject matter that always has people talking. As for public company executives, with their compensation required to be disclosed, the discussion around how much the company leaders are being compensated always appears as a topic of interest. Looking closer at the details surrounding executive pay, in the fine print you’ll see the extra benefits or perks that come along with a high-valued job.
What are executive perks?
Perks, or the formal term – executive perquisites, are a form of auxiliary benefits that recognize the value of an executive and provide additional services, usually unrelated to pay and performance. They are very “intrinsic in nature” and usually customized to the executive they benefit. As companies adjust their approach to search for top talent, they become more competitive in terms of attracting and retaining key executives. These benefits could include special retirement plans, financial advice, personal drivers, medical physicals, and country club memberships just to name a few.
Why are executive perks on the decline?
Over the last decade, the prevalence of perquisites for executives has been on the slight decline due to disclosure requirements. Reason being more transparency is required from regulatory institutions in describing executive pay practices. Examples include the decrease in use of company cars or car allowances. However, these discrepancies haven’t come without change. Voluntary benefits and increased salaries have filled in the gap left by the absence of some benefits.
Scrutiny from the SEC & Proper Disclosure
Perquisites have been under scrutiny from the SEC for being excessive since the Jack Welch fiasco, as well as many not disclosing financial details behind the benefits. Today, SEC proxy disclosures rules each perquisite should be identified by type when the aggregate value of all reportable perquisites total at least $10,000. For a perquisite to be reportable, it should provide a direct or indirect benefit with a personal aspect not related to the executive’s performance. As a general rule, the cost of providing executive perks results in taxable income to the executive and a deductible to the company. Management may choose to increase cash compensation for named executive officers in return they exercise the option to use voluntary benefits.
Executive perks are great for attraction and retention, but keep them reasonable
Bottom-line, even though executive perquisites are often overlooked in the grand scheme of compensation, they are still a critical component of a well-balanced compensation package. This is particularly true in this environment, any chance to secure and retain top-level talent with a few extra perks may be worth the cost as long as it is adequately disclosed to ensure SEC compliance. But be careful – make sure they are reasonable, fair, and justifiable.