The Advisors' Blog

This 14-page Glass Lewis report (available for download) says that “perks” are back in the spotlight with investors. Here’s why:

Perquisites, while usually a small component of executive pay packages, are currently soaring — and becoming a point of focus among shareholders and the public. Perquisites are often provided to support the executives in performing their duties, but the exclusivity it offers can also serve as a status symbol. They become problematic when they become excessive, underscoring broader concerns with executive compensation practices.

Ultimately, while perquisites will remain a constant feature of executive pay packages, a recent spike in perquisite costs is testing shareholder tolerance. In this post, we look at what is driving that spike, with a focus on aircraft, housing and security, and at how companies are reporting the costs.

According to the report, when investors deem perks to be excessive, they may also view them as a “canary in the coal mine” for poor governance or other problematic pay practices – which can lead to low support for say-on-pay and/or compensation committee members. Aircraft usage remains a sticking point, so Glass Lewis recommends disclosing a compelling rationale if these travel expenses greatly exceed industry norms or the company’s past practices. For example, investors may be more understanding if the company is requiring use of corporate aircraft following a third-party security study that identified credible threats. Speaking of security costs, the report gives this stat:

Among S&P 500 companies, the median total security reported for CEO in 2023 increased by approximately 114% and 98% compared to fiscal years 2019 and 2020, respectively. Prior to the pandemic, only 67 S&P 500 companies covered security costs for executives. This rose to 98 companies in 2023.

Glass Lewis predicts security-related expenses will be even higher when we see 2024 data. Investors may apply more scrutiny if enhanced security spending is triggered by other perks like “super commuting” that create security gaps. The report concludes with these suggestions:

Increased discussion and disclosure regarding rationale for out-of-the norm perquisites should be regarded as best practice and a standard in proxy statements going forward. Increased engagement on such topics is also efficient in curtailing excessive benefits. Going forward, we expect increased disclosure and increased adoption of limitations on total perquisite benefits, particularly as they relate to personal use of aircraft.

– Liz Dunshee