January 6, 2022
Perks: Should the Comp Committee Approve Them Every Year?
As everyone plots out the agendas for upcoming board & committee meetings – and considers governance disclosure that will go in the proxy statement – a member recently posted this question to our “Q&A Forum” (#1390):
Does the compensation committee need to/should it approve personal security and/or other perks on an annual basis?
John Jenkins responded:
Yes, I think comp committee oversight of the nature of the perks that are provided to executives is essential and that committee approval of them on an annual basis is appropriate. After all, the perks a company provides are an element of executive comp. Stock exchange rules require the comp committee to approve CEO compensation and to recommend the compensation of compensation for other executive officers. Many charters go beyond that, and delegate responsibility for executive comp to the comp committee.
Perks are an investor hot button and an area that’s gotten a lot of attention from the SEC’s Division of Enforcement, and oversight from the comp committee is expected. Here’s what the CII had to say at the time the SEC adopted the revised comp disclosure rules:
“Company perquisites blur the line between personal and business expenses. The Council believes that executives, not companies, should be responsible for paying personal expenses—particularly those that average employees routinely shoulder, such as family and personal travel, financial planning, club memberships and other dues. The compensation committee should ensure that any perquisites are warranted and have a legitimate business purpose, and it should consider capping all perquisites at a de minimus level. Total perquisites should be described, disclosed and valued.”
I think that the general perquisites provided to the company’s executives need to be reviewed and approved by the compensation committee just like any other compensation plans or practices that apply to its executive officers.
– Liz Dunshee