Executive Benefits, Travel, and Other Benefits — Are They Perquisites?

Public companies frequently provide executives with benefits that are intended to support business operations, security, recruiting, retention, or other corporate objectives. These benefits may include personal use of corporate aircraft, security arrangements, club memberships, financial planning services, housing assistance, commuting arrangements, and other forms of executive support.

Although many of these benefits may serve legitimate business purposes, SEC (U.S. Securities and Exchange Commission) disclosure rules apply a specific framework for determining whether a benefit constitutes a “perquisite” or “personal benefit” that must be disclosed as executive compensation under Item 402 of Regulation S-K. The SEC has repeatedly emphasized that the analysis does not turn on whether the company receives a business benefit from providing the item.

Companies should carefully evaluate executive benefits through the SEC’s two-step framework and ensure that appropriate procedures exist to identify, value, and disclose perquisites when required.

What Is the SEC’s Test?

The SEC applies a two-step analysis when determining whether an item constitutes a perquisite or personal benefit.

First, companies must determine whether the item is integrally and directly related to the performance of the executive’s duties. The SEC has emphasized that this is a narrow exception and applies only when the executive needs the item to perform their job responsibilities.

If the item is integrally and directly related to job performance, the analysis ends and the item is not considered a perquisite.

If the item is not integrally and directly related to job performance, the company must determine whether the item confers a direct or indirect benefit that has a personal aspect. If it does, the item generally constitutes a perquisite unless it is generally available to all employees on a nondiscriminatory basis.

Importantly, the SEC has repeatedly stated that a business purpose for providing a benefit does not prevent it from being a perquisite. Likewise, the fact that a company views an expense as ordinary and necessary for tax purposes or beneficial to the company does not determine the disclosure outcome.

Common Examples of Perquisites

The SEC has identified several benefits that frequently constitute perquisites, including:

• Personal use of company-owned or company-leased aircraft
• Personal travel financed by the company
• Commuting arrangements
• Housing and living expenses
• Personal financial or tax planning services
• Security provided at a personal residence or during personal travel
• Club memberships not used exclusively for business entertainment purposes
• Discounts or benefits not generally available to employees on a nondiscriminatory basis

The SEC has also emphasized that personal benefits remain perquisites even when provided for security reasons. For example, requiring an executive to use company aircraft for personal travel because of security concerns does not alter the characterization of the benefit as a perquisite.

Disclosure Considerations

Perquisites generally are disclosed as compensation under Item 402 of Regulation S-K. Once a company determines that a benefit constitutes a perquisite or personal benefit, it must evaluate the aggregate incremental cost associated with the benefit and determine whether its disclosure is required in executive compensation disclosure.

Perquisites are generally reported in the “All Other Compensation” column of the Summary Compensation Table for named executive officers. If the aggregate value of all perquisites and personal benefits provided to a named executive officer is less than $10,000 during the applicable fiscal year, disclosure generally is not required. However, once the value is $10,000 or more, all perquisites must be identified by type in a footnote to the Summary Compensation Table.

In addition, any individual perquisite that exceeds the greater of $25,000 or 10% of the executive’s total perquisites and personal benefits must generally be separately quantified and disclosed. Any reimbursement of taxes owed with respect to a perquisite must be reported and separately quantified as a tax reimbursement, even if the underlying perquisites fall below the $10,000 threshold or are identified without being separately quantified. As a result, companies should establish procedures that permit benefits to be tracked throughout the year rather than attempting to identify reportable items solely during the proxy statement preparation process.

Valuation considerations can be complex. The SEC requires disclosure based on the aggregate incremental cost to the company providing the benefit. For certain perquisites, such as personal aircraft usage, determining aggregate incremental cost may require detailed analysis of operating expenses, fuel costs, maintenance expenses, landing fees, crew travel expenses, catering costs, and repositioning flights. Companies should ensure that finance, accounting, and legal personnel align on valuation methodologies and apply them consistently from year to year.

Executive Security Arrangements

Disclosure issues frequently arise in connection with executive security arrangements. Public companies increasingly provide residential security systems, personal security personnel, secure transportation arrangements, and related benefits to executive officers. Although these arrangements may be recommended by security consultants and implemented to address legitimate security concerns, the SEC has indicated that security benefits provided at a personal residence or during personal travel generally constitute perquisites unless the benefits are integrally and directly related to the performance of the executive’s duties. Accordingly, companies should carefully evaluate both disclosure and valuation implications when implementing or expanding executive security programs.

Personal Use of Corporate Aircraft

Similarly, personal use of corporate aircraft remains an area of recurring SEC scrutiny. Companies often require executives to use private aircraft for personal travel due to security, scheduling, or efficiency considerations. The SEC has expressly stated that the existence of such business or security justifications does not alter the characterization of personal travel as a perquisite. Therefore, companies should ensure that procedures exist to identify personal usage, calculate aggregate incremental cost, and capture any required disclosure.

Companies should also consider whether board members receive benefits that could constitute perquisites. Directors are subject to separate compensation disclosure requirements, and personal benefits provided to directors may require disclosure in director compensation tables and related narrative disclosure.

Disclosure Controls and Procedures Considerations

Because perquisite determinations are highly fact-specific, companies should consider establishing written policies and procedures governing the identification, approval, valuation, and disclosure of executive benefits. Effective disclosure controls often require coordination among legal, finance, accounting, payroll, human resources, executive administration, corporate security, and tax personnel, particularly when benefits are provided outside of traditional compensation programs.

Companies should establish systems for identifying perquisites when they are provided to executive officers or directors and maintain procedures designed to identify, track, value, and disclose perquisites in accordance with their disclosure controls and procedures.

Companies should also consider periodic training to ensure that individuals responsible for administering executive benefits understand the SEC’s perquisite framework and do not rely solely on tax treatment, accounting treatment, or business-purpose analyses when evaluating disclosure obligations. Employees involved in approving or administering executive benefits should understand that a benefit may constitute a perquisite even if it is provided for legitimate business, security, or convenience reasons.

Enforcement Considerations

The SEC has pursued enforcement actions when companies failed to properly identify and disclose executive perquisites. In these cases, the SEC has emphasized that companies must apply its perquisite framework rather than rely on a business-purpose analysis and should maintain disclosure controls reasonably designed to identify, value, and disclose executive benefits.

Practical Checklist

• Has the company evaluated the benefit using the SEC’s two-step perquisite analysis?
• Is the benefit integrally and directly related to the performance of the executive’s duties?
• Does the benefit confer a direct or indirect personal benefit to the executive?
• Is the benefit generally available to employees on a nondiscriminatory basis?
• Have personal aircraft usage, commuting arrangements, housing benefits, club memberships, personal financial or tax planning services, and other common executive benefits been reviewed?
• Have executive security arrangements been evaluated, including security provided at personal residences or during personal travel?
• Have any benefits provided to directors been evaluated under the same framework?
• Has the aggregate incremental cost of any perquisite been appropriately determined?
• Have disclosure requirements under Item 402 of Regulation S-K been evaluated?
• Has the company reviewed whether any perquisite disclosure affects other executive compensation or director compensation disclosure?
• Does the company maintain policies and procedures governing the identification, tracking, valuation, and disclosure of executive perquisites?
• Are disclosure controls designed to capture executive benefits when they are provided?
• Have employees responsible for identifying, tracking, valuing, and disclosing perquisites received appropriate training regarding the SEC’s perquisite framework?
• Have disclosure conclusions and supporting analyses been appropriately documented?