ML BeneBits


The Securities and Exchange Commission (SEC) is continuing its focus on disclosure of executive perquisites—and aircraft usage in particular—in registration statements, periodic reports, and proxy statements.

Pursuant to Item 402 of Regulation S-K in registration statements, public companies are required to disclose detailed information regarding their executive compensation practices, periodic reports, and proxy statements. In the Summary Compensation Table, which presents a comprehensive snapshot of the elements of named executive officers’ total compensation, public companies must identify and quantify the total value of perquisites of each named executive officer whose perquisites exceed $10,000 for the year. For this purpose, perquisites are benefits that are not “generally available on a nondiscriminatory basis to all employees” and that are not “integrally and directly related to the performance of the executive’s duties.”

Although executive compensation generally has been an area of regulatory focus, the SEC has shown a specific focus on perquisite disclosure. The SEC has brought enforcement actions against several companies for failing to disclose executive perquisites in their SEC filings, such as proxy statements that are used to solicit shareholder approval, on an advisory basis, of the compensation awarded to named executive officers. In many cases, the perquisite disclosure related to airline travel and similar personal benefits.

We previously discussed these issues in our September 2018 blog. Our July 2023 LawFlash discusses a recent case in which the SEC brought an enforcement action against a company that failed to disclose $1.3 million in perquisites in its proxy statements related primarily to personal aircraft use by its executive officers. One lesson from these recent actions is that the SEC is willing to incentivize companies to self-report and cooperate with SEC investigation by reducing and even eliminating civil penalties for such violations of the federal securities laws.

Recent Resurgence in SEC Enforcement

Between 2020 and 2023, the SEC brought charges against several companies for failure to report millions of dollars of perquisites related to executives’ personal use of company aircrafts and/or corporate credit cards. The violations generally stemmed from:

  • Improper internal disclosure and financial reporting controls
  • Executives’ failure to provide the necessary information (most commonly in response to directors and officers insurance (D&O) questionnaires) to enable companies to identify and properly disclose perquisites
  • Lack of an adequate company process to determine whether executive flights were perquisites that should be disclosed
  • Failure to appropriately train employees in the roles responsible for making the determination of whether items were perquisites
  • Lack of a formal company policy regarding approval and use of noncommercial aircraft and aviation expense reimbursement, including one case where the lack of a formal reimbursement policy resulted in the CEO being responsible for approving his own expenses

The SEC has generally imposed penalties on companies, but in certain cases where failures were due to the executive’s improper actions, the SEC also imposed fines on the executive.

Best Practices

Identifying and properly valuing perquisites requires specific expertise. Public companies should periodically review and update their processes for identifying, valuing, and disclosing perquisites in their SEC filings. They should provide appropriate training to the employees responsible for preparing executive compensation disclosure in SEC filings so those employees can appropriately identify and correctly disclose all perquisites. In addition, those responsible for compiling necessary information, such as D&O questionnaires, should actively review and assess the accuracy and completeness of the information provided.

Particular attention should be paid to aircraft usage by executives, and formal policies should be adopted for the approval and use of company-provided aircrafts by executives. Moreover, public companies should ensure that they are applying the appropriate legal standard when considering whether an item is a perquisite and document internal determinations. When addressing issues of uncertainty, consultation with trusted legal advisors would be prudent.

In addition, companies should pay close attention to the tax aspects of perquisites, particularly aircraft usage. The Internal Revenue Service has recently announced that it is opening approximately four dozen tax audits relating to the use of personal jets that are owned or leased by multinational or US corporations. Our recent blog related to the IRS audits and taxation of aircraft usage can be found here.