The Advisors' Blog

Yesterday, the SEC announced that it settled charges against a company related to an alleged failure to disclose approximately $1 million worth of perquisites predominantly related to its CEO’s use of chartered aircraft. The SEC’s order against the company states that its process did not apply the “integrally-and-directly-related standard.” Instead, the company’s “system for identifying, tracking, and calculating perquisites incorrectly applied a standard whereby a business purpose would be sufficient to determine that certain items were not perquisites or personal benefits that required disclosure” and “incorrectly viewed the CEO’s business expenses to include expenses associated with the CEO’s personal flights, including transportation, meals, and hotel.” If this sounds familiar, it is!

In this case, the company discovered the error and revised its disclosure in a subsequent proxy statement:

On April 28, 2023, Express filed its fiscal year 2022 proxy statement, which, among other things, provided revised disclosures regarding perquisites and personal benefits provided to the CEO for fiscal years 2020 and 2021. Express also disclosed that the CEO voluntarily reimbursed the company approximately $454,000 for private air travel and expenses that were determined to be perquisites or personal expenses.

At the risk of sounding like a broken record, I’m going to share this reminder from the order:

According to the Adopting Release, “an item is not a perquisite or personal benefit,” and does not need to be reported, “if it is integrally and directly related to the performance of the executive’s duties. Otherwise, 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.” The Adopting Release also states that “the concept of a benefit that is ‘integrally and directly related’ to job performance is a narrow one,” which “draws a critical distinction between an item that a company provides because the executive needs it to do the job, making it integrally and directly related to the performance of duties, and an item provided for some other reason, even where that other reason can involve both company benefit and personal benefit.”

According to the Adopting Release, even where the company “has determined that an expense is an ‘ordinary’ or ‘necessary’ business expense for tax or other purposes or that an expense is for the benefit or convenience of the company,” that determination “is not responsive to the inquiry as to whether the expense provides a perquisite or other personal benefit for disclosure purposes.” Indeed, “business purpose or convenience does not affect the characterization of an item as a perquisite or personal benefit where it is not integrally and directly related to the performance by the executive of his or her job.”

As always, the devil is in the details! For a refresher, check out the “Perks & Other Personal Benefits” Chapter of our Executive Compensation Disclosure Treatise — many pages are devoted to airplane use!

– Meredith Ervine