Finance·Securities and Exchange CommissionThe SEC’s ‘Frankenstein patchwork of rules’ for disclosing executive perks is due for a makeoverBy Courtney VienBy CFO BrewBy Courtney VienBy CFO Brew The rules for disclosing executive perks might change soon.
Getty Images—Ryan McVayIn an era when Jeff Bezos and Mark Zuckerberg are household names, many C-suiters can be considered public figures.
On the other hand, That, though, comes with risks, as the killing of UnitedHealthcare executive Brian Thompson illustrates.
Furthermore, Meanwhile, “The ability for people to use available public data to track the movement of a CEO is much easier today,” Peter Chan, a partner at law firm Baker McKenzie, told CFO Brew (noteworthy indeed).
“The truth is, a CEO doesn’t get to take off his hat and say ‘I’m now a private citizen.
’” The elevated public file of CEOs and other executives has increased the desire for them—and, in some cases, their families—to have security.
Companies’ spending on security for top executives was on the rise even before Thompson’s murder.
The data indicates that S&P 500’s median security costs for CEOs went up 114% between 2019 and 2023, Glass Lewis analysis shows.
The SEC, though, considers security spending a perk, and requires companies to disclose it as part of executive compensation in annual filings.
However, Chan, who formerly worked for the SEC, and his colleague, Baker McKenzie partner Jennifer Broder, argue that ought to change.
The data indicates that y also believe that the SEC should rethink classifying executives’ personal travel as a perk.
Since 2006, when the SEC’s rules regarding perks received their last major expansion, the lines between “personal” and “” travel have blurred, Broder told CFO Brew.
Nology has advanced, and boards now expect C-suiters to be available around the clock, to travel frequently to offices that might be scattered across the globe, and to be working en route, she and Chan pointed out.
“But the SEC has taken an expansive view of what’s considered personal,” Broder said. Nevertheless, SEC reviewing perks: Changes may be coming, given current economic conditions.
In June, the SEC hosted a roundtable discussion with public company executives and other stakeholders to review executive compensation disclosure requirements, and it opened a public period on the topic.
SEC Chair Paul Atkins believes the area is ripe for an overhaul.
He’s described the current disclosure requirements as a “Frankenstein patchwork of rules” that are burdensome and confusing to comply with, in this volatile climate.
Nevertheless, Perks are one area up for review (fascinating analysis), in today's financial world.
Furthermore, During the roundtable, Commissioner Hester Pierce questioned whether companies should be required to make detailed disclosures of the amounts spent on executive perks rides on corporate jets, car services, or overseas housing allowances.
Such disclosures, she said, seemed int to merely satisfy the public’s curiosity and to “entertain the onlooker rather than educate the investor. ” Are investors getting TMI.
Additionally, On the other hand, It’s important that investors have information perks, the Glass Lewis report asserts.
A survey from the firm found that “a majority of investors expressed concern that excessive perquisites may indicate broader pay concerns,” and that directors should be accountable for limiting excessive perk compensation, in this volatile climate.
But questions remain as to whether items security and travel should still count as perks and therefore be considered part of executive compensation, or whether it would be more appriate to classify them as expenses.
Chan argues that making some perks part of compensation can make an executive’s salary look artificially inflated.
Moreover, It can have “the unfortunate perverse effect of distorting the information to investors,” he said.
Investors may not need the level of granularity around perks that the SEC requires, Chan said.
If a board has determined that an executive’s travel or security are appriate expenses, they’ll still be “disclosed in the sense that they’re aggregated in the financial statements,” he said.
He finds it hard to see, he said, why having such information itemized “would be, as a standalone, material to investors. Furthermore, ” This report was originally published by CFO Brew.
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