Home » CEO Life » Lowdown on Executive Perquisites

Lowdown on Executive Perquisites

It was Thanksgiving last week. And at least one CEO chose to get into the holiday mood writing a fun …

It was Thanksgiving last week. And at least one CEO chose to get into the holiday mood writing a fun blog, albeit on a sensitive subject: Executive perquisites. David Chun, CEO of Equilar, the Redwood Shores, California-based company that specializes in benchmarking executive and board pay and a NASDAQ strategic alliance partner decided to let his readers “get a kick out of” the lowdown he has on the goodies companies pay their executives. 

In “Perquisites – Fun SEC Reading Just in Time for the Holidays“, Chun, surprisingly, has taken a very cautious step as he begins with “Perquisites are undoubtedly one of the more controversial areas of executive compensation. As such, I will not attempt to address the merits of perks, or why companies should or should not offer them.” 

Very few authorities on the subject have attempted to explain the metrics behind why companies pay their executives what has now acquired various names, including, “perverse perks” and “the other compensation”, although companies that Chun has highlighted in his blog have provided details about the “why” of it. For instance, Chun writes that UST Inc offers “an annual wine allowance of up to $5,000 to foster use of the Company’s wine products at events supported by such directors.” 

In its proxy statement to the SEC, under the component Perquisites, UST Inc justifies the why, saying: “The level of the perquisites allowed is based on the Company’s assessment of a reasonable amount necessary to accomplish its objective in providing these benefits.” 

Shouldn’t such a statement by a company be fair enough for allowances such as wine, a $1,500 as clothing allowance to non-employee directors at Harley-Davidson or entitlement of $5,000 annually as “Lucky Cat Dining Card” to non-employee directors at P.F.Changs? That much for the amusement part of the perquisites.

The serious issue about executive perquisites was, earlier this month, released as a study by Equilar. Chun writes: “We’ve published numerous newsletter articles on this topic over the past several months and also recently released a study of Fortune 100 CEO benefits and perquisites that was picked up by BusinessWeek.”

The Equilar study, according to BW shows that “The median value of benefits and perks received by chief executive officers at nearly 100 of the nation’s largest companies fell 1.3 percent in 2006, to $334,433″ mainly “driven in part by the new [SEC] rule itself rather than any resulting change in behavior.”

 Two of the most interesting comments on the subject, worth the attention of readers, have come from a commissioner and the chairman at the SEC. SEC Chairman Chris Cox said that investors “should not need a machete and a pith helmet to go hunting for what the CEO makes.” (See “Final Word) and from James C Treadway Jr, the SEC commissioner in 1984, who, in a speech, said:  

Bumblebees Are Better Than Theories That’s a bit of a forced march through history, but I think it provides a useful backdrop for our reflections today. For I simply do not propose to enter the heavily economically oriented debate about mandatory disclosure, because the debate — however interesting it may be — is of limited utility. After all, for years other theorists — physicists to be precise — have told us that it is aerodynamically impossible for a bumblebee to fly, and they can prove it by applying the laws of physics. The bumblebee is too big and too heavy: its wings are too short: and its body is cumbersomely shaped. When you think about it, that’s remarkably similar to the way the critics describe mandatory disclosure. But someone forgot to tell the bumblebee that it can’t fly. The same, I submit, holds true for mandatory disclosure.” (See http://www.sec.gov/news/speech/1984/050384treadway.pdf) 

Other related stories: 

What’s so scary about disclosures?

Is CEO Comp Criticism Valid?

About francis adams