It is well known that the impact of the COVID-19 pandemic on business operations has directly affected executive compensation decision-making and related disclosures. With this backdrop, the Securities and Exchange Commission (SEC) has provided timely new guidance on the disclosure of named executive officers' perquisites and other personal benefits.

General Rule

Item 402(c)(2)(ix)(A) of Regulation S-K requires U.S. public companies to disclose as part of the Summary Compensation Table and total compensation calculation the perquisites and other personal benefits ("Perks") provided to a named executive officer if the aggregate value of the Perks received by a named executive officer is more than $10,000. When an executive receives Perks with an aggregate value of $10,000 or more in a fiscal year, each Perk, regardless of its amount, must be specifically identified by type, and any Perk that has a value exceeding the greater of $25,000 or 10 percent of the aggregate value of all Perks received by the named executive officer must be quantified and disclosed in a footnote to the Summary Compensation Table.

Prior SEC Guidance

When determining whether an item is a Perk, businesses and legal practitioners rely on the two-factor test articulated by the SEC in Release 33-8732A:

  1. An item is not a Perk if it is integrally and directly related to the performance of the executive's duties.
  2. An item is a Perk if it confers a direct or indirect benefit that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the company, unless it is generally available on a non-discriminatory basis to all employees.

Under the first factor, companies need to consider whether the item is "integrally and directly related" to the performance of the executive's duties; in other words, whether the item is "needed" by the executive to do her job (such as a laptop or phone).1 Once an item is identified as "integrally and directly related" to the performance of an executive's duties, the determination does not change even if a less expensive alternative was available. For example, the use of a corporate aircraft by an executive to attend a company's business meeting would not be considered a Perk because attendance at the meeting is "integrally and directly related" to the executive's duties, even though it would be possible to use a commercial airline to attend the board meeting less expensively. In such a case, the cost of the use of the corporate aircraft would not need to be disclosed as compensation to the executive in the form of a Perk.

If the item is not "needed" by the executive to perform her duties, companies ought to consider whether an item confers a direct or indirect benefit to the executive for a personal aspect. Even if the item provides some benefit or convenience to the company, the item would still be a Perk, and thus its value would need to be disclosed. For example, the use of a corporate aircraft by an executive to attend a family wedding would be considered a Perk because attendance at the wedding is not "integrally and directly related" to the executive's duties, and it confers a personal benefit to the executive, even though it may be more beneficial for the company to have her on the plane where the company has better communication with the executive while she is in flight.

However, where a personal benefit is provided to all employees on a non-discriminatory basis, it is not a Perk. For example, employee discounts or corporate products that are available on an equal basis to all employees would not be considered a Perk.

New COVID-19 Guidance

On September 21, 2020, the Staff of the Division of Corporation Finance of the SEC ("Staff") provided additional guidance regarding the disclosure of Perks provided as a result of COVID-19. This guidance appears as issue number 219.05 in the Compliance and Disclosure Interpretations to Regulation S-K, in which the Staff (1) reinforces the existing two-factor analysis in determining whether an item is a Perk and (2) demonstrates an example of the two-factor analysis for benefits provided to executives in light of COVID-19.

The Staff considered two examples: enhanced technology for an executive's remote work and enhanced health or personal transportation benefits. The Staff noted that enhanced technology provided to an executive for his or her home use would not be a Perk when local stay-at-home orders render an executive's home to be his or her primary workplace. The basis for this position being that enhanced technology for home offices is "integrally and directly related" to the performance of the executive's duties (or simply "needed" by the executive to complete his or her work). Note that once determined not to be a Perk, there is no requirement to provide any less expensive alternatives to the enhanced technologies.

The provision of enhanced or new health or personal transportation benefits to address new risks associated with COVID-19, however, would generally be a Perk, as these benefits are not expected to be "integrally and directly related" to the performance of the executive's duties. While an executive's health and safety may be important to the company, unless the new benefit is broadly available to all employees on a non-discriminatory basis, it would be considered a Perk.

Our Take

As companies begin to think about their executive compensation disclosures in respect of 2020, they should analyze the benefits and resources provided to executives over the past year and evaluate each item using the two-factor test, which remains unchanged although factual circumstances may have. Companies may find that new resources provided to executives that were consequent to COVID-19 may be disclosable. This guidance also demonstrates the Staff's attentive consideration to Perks as an aspect of executive compensation disclosure, so companies should be diligent about internal controls and procedures for characterizing and disclosing expenses and other payments and benefits. Omissions and wrongful characterization of Perks could lead to SEC enforcement actions. Prior enforcement actions have resulted in significant financial penalties and have, in some cases, required companies to retain independent consultants to review the companies' policies, procedures, controls and training relating to Perk reporting and disclosure.


1. Please keep in mind that the analysis of an item under the "integrally and directly related" test is independent of the tax deductibility of the item as a business expense. In other words, an item that would legitimately be a tax-deductible business expense may nonetheless be a Perk if it is not "integrally and directly related" to the performance of the executive's duties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.