ML BeneBits

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 228.402(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. Please reach out to the authors or your Morgan Lewis contact if you would like assistance with evaluating perquisites or policies and procedures.