The Advisors' Blog

The requirement to disclose executive security spend in the Summary Compensation Table’s calculation of “Total Compensation” has been a significant area of comment in letters submitted to the SEC on executive compensation disclosure requirements. In addition to addressing security spend, the letters have also commented on the two-part test and the disclosure thresholds.

Here’s more from the September-October issue of The Corporate Executive newsletter, which includes a deeper dive into the topics covered at the SEC’s Executive Compensation Roundtable, as well as the many issues that commenters have been raising for the SEC’s consideration in its retrospective review of executive compensation disclosure requirements.

Many comment letters ask the SEC to revisit the nuanced, two-part test since it is difficult to apply in practice. Cooley advocates for a “primary purpose” test — that is, whether the primary purpose of a benefit is to further a company’s legitimate business objectives, not whether it is necessary for the executive’s job.

The Society’s letter also addresses this. Here’s an excerpt:

As part of the Commission reconsideration of the definition of perquisites, the current interpretive standard should be revised in a manner to exclude arrangements provided primarily for legitimate business objectives. There should be a presumption, but not a requirement, that defers to the determination of a company’s board of directors or committee of independent directors. For example, rules or interpretive guidance could provide that an arrangement or item is not a perquisite if a company’s board of directors or a committee of independent directors have approved or ratified the benefit as being primarily to fulfill a business purpose, or have approved or ratified a business purpose policy under which the benefit is provided. Any standard for determining whether an item or arrangement is a perquisite should be applied on a facts-and circumstances basis instead of per se determinations that items are perquisites.

Commentators also advocate increasing the perquisite disclosure thresholds.

The National Association of Manufacturers and the NYSE Institute suggest that there be a $100,000 aggregated threshold for perquisite reporting, to be indexed to inflation going forward, while the Society for Corporate Governance offered a $50,000 threshold. The NYSE Institute and many other letters also cite the heightened threat environment and argue that amounts spent on executive security have become critical business expenses and should not be considered a reportable perquisite.

Cooley and Baker McKenzie also argue that work locations have become decentralized, such that travel between an executive’s approved work location and the company’s headquarters should not be deemed a commute, and when a company covers the cost of an executive’s travel between these locations, those amounts should not be considered perquisites.

The Corporate Executive newsletter often addresses compensation-related topics. If you are not already receiving the important updates we provide in The Corporate Executive newsletter, please email info@ccrcorp.com or call 1.800.737.1271 to subscribe to this essential resource.

– Meredith Ervine