SEC Targets Executive Perquisite Disclosure

Recent SEC enforcement actions highlight the importance of accurate proxy disclosure of perquisites provided to named executive officers.

The SEC proxy disclosure rules require that companies disclose in the Summary Compensation Table of the proxy statement the perquisites provided to a named executive officer if the officer’s total perquisites exceed $10,000. If the value of a single perquisite exceeds the greater of $25,000 or 10% of the total value of all perquisites reported, then the type and amount of such perquisite must be identified in a footnote. See 17 CFR 229.402(c)(2)(ix), Instruction 4.

The SEC standard for analyzing whether a benefit is a perquisite considers the following:

  • An item is not a perquisite or personal benefit if it is integrally and directly related to the performance of the executive’s duties
  • An item is a perquisite or personal benefit if it confers a direct or indirect benefit that has a personal aspect without regard to whether it may be provided for some business reason or for the convenience of the company, unless it is generally available on a non-discriminatory basis to all employees

According to a recent settlement with the SEC, the SEC brought charges against Dow Chemical Company alleging that, from 2011 to 2015, Dow Chemical did not adequately disclose in its proxy statements approximately $3 million of the CEO’s perquisites. The perquisites included travel to outside board meetings, sporting events, club memberships, and membership fees to sit on the board of a charitable organization. The claim was settled with Dow Chemical’s agreement to pay a $1.75 million fine, engage an independent consultant to review and recommend changes to policies and procedures for perquisite disclosure, and implement such recommendations.

The SEC also brought an action against the former CEO of Energy XXI alleging that the company failed to disclose over $1 million of perquisites and expenses that were personal in nature or for which there was no supporting documentation to establish a business purpose. The perquisites included shopping trips, first class travel for the CEO’s family, and a donation to his daughter’s private school. The CEO settlement included a $180,000 fine and a five-year ban on serving as a corporate officer of a public company.

These settlements serve as a reminder that publicly held companies should periodically review their procedures for evaluating whether an item is a perquisite, and for valuing and disclosing perquisites in the proxy.


This article was originally posted on Morgan Lewis’s BeneBits blog.

Mims Maynard Zabriskie is a partner and co-leader of the Morgan Lewis Executive Compensation Task Force. Mims advises clients on complex executive compensation and employee benefit plan matters. She counsels large publicly and privately owned businesses on a range of legal issues related to executive compensation, governance, and employee benefit plans. She also advises on benefits and executive compensation issues that arise during major corporate transactions, including mergers and acquisitions, sales, IPOs, and spinoffs.

Lauren E. Sullivan is an associate at Morgan Lewis and 2013 graduate of Temple Law. As part of a team of lawyers that help clients with often complex employee benefit–related business issues, Lauren E. Sullivan concentrates her practice on health and welfare plans, qualified pension and profit-sharing plans, cash or deferred arrangements, nonqualified deferred compensation plans, and executive and equity compensation arrangements. While in law school, she served as an intern for Judge Marjorie O. Rendell of the US Court of Appeals for the Third Circuit.