REITs Executive Compensation Guide
Perquisites Executive perquisites, or “perks,” are fringe benefits awarded to executives that are neither broad-based nor directly related to the performance of the executive’s duties. These can include executive benefit plans, aircraft or automobile allowances, club memberships, personal benefits and relocation benefits. Generally speaking, an item is considered a perquisite for disclosure purposes if: ■ the benefit is not directly and integrally related to the performance of the executive’s duties (i.e., the executive needs the benefit to perform his, her or their job); and ■ it confers a direct or indirect benefit that is personal to the executive, unless the benefit is generally available on a non-discriminatory basis to all employees. The SEC takes a very narrow view of whether a benefit is directly and integrally related to job performance, and a valid business purpose or convenience to the company does not affect the characterization of a benefit as a perquisite. For instance, on July 2, 2018, the SEC issued a cease-and-desist order finding that Dow Chemical Company’s disclosure of executive perquisites in its annual proxy statements understated the value of perquisites and omitted disclosure of perquisites received by its CEO because the company applied an incorrect “business purpose” test for determining perquisites. In light of enhanced scrutiny of perquisite disclosures, REITs should ensure that employees responsible for executive compensation disclosures understand the SEC’s disclosure standards for perquisites — a task that is made difficult by the fact that much of the SEC’s guidance relating to perquisite disclosures is nuanced and challenging to apply in practice.
9 | 2023 Guide to REIT Executive Compensation
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