Before we head into the long Thanksgiving holiday, I thought I’d follow up the post that I published last month about the perquisites offered to the directors (and executive officers) of Vail Resorts, Inc. with some additional “perks” disclosure. Recently, I had the opportunity to review the definitive proxy statement of Cisco Systems, Inc., which contains its own interesting perquisites disclosure. Although the company generally doesn’t offer perquisites to its executive officers, it does make a few exceptions. And it provides a thorough discussion of those exceptions in its Compensation Discussion and Analysis (starting at page 36), including two areas that are often the subject of disclosure: the personal use of corporate aircraft and personal security for its senior executives. In my experience, most companies tend not to say very much in the CD&A about their perquisite policies. (Often, perquisites information is confined to a footnote to the Summary Compensation Table.) As a result, these two disclosures really stand out.
Here’s what the company has to say about its corporate aircraft policy:
Our CEO and our other executive officers may occasionally use our corporate aircraft for personal use, subject to availability, provided they reimburse Cisco for the incremental cost of the flight. Because the leased corporate aircraft is used primarily for business travel, Cisco requires reimbursement for the incremental cost of the flight (these costs do not include fixed costs that do not change based on usage). The reimbursable incremental cost for personal use includes, when applicable, the following costs: fuel, landing/parking fees, crew fees and expenses, custom fees, flight services/charts, variable maintenance costs, inspections, catering, aircraft supplies, telephone usage, trip-related hangar rent and parking costs, plane repositioning costs (deadhead flights), occupied variable fees, and other miscellaneous expenses. Cisco does not seek reimbursement of fixed costs such as monthly management fees, lease payments, crew salaries, maintenance costs not related to trips, training, home hangaring, general taxes and insurance, and services support, as these costs are generally incurred for business purposes. In addition, occasionally, guests of named executive officers are permitted to ride along on Cisco’s leased corporate aircraft when the aircraft is already going to a specific destination for a business purpose, provided there is no more than de minimis incremental cost. On such occasions, the named executive officer will be subject to imputed income at the applicable Standard Industrial Fare Level (SIFL) rates for any personal passengers on that flight, and Cisco does not provide tax gross-ups for such imputed income.
And here’s the disclosure about its personal security practices:
Consistent with prevalent practices among large, multinational companies, and based on an independent third-party security study, Cisco provides security personnel for the CEO and his family members for business travel and certain non-business travel. The Compensation Committee must pre-approve security for the CEO and his family members on non-business trips when the aggregate cost for such trips per fiscal year will equal or exceed $25,000. The Chair of the Compensation Committee must pre-approve any security recommended by Cisco Security or a third-party security vendor for families traveling with executive officers other than the CEO on business trips and for such executive officers and, if applicable, their families on non-business trips. In addition, Cisco security practices provide that the CEO may be driven to and from work by an authorized car service and personal security driver. The incremental cost of security expenses for Cisco security personnel is their meals, lodging, and travel, but generally not their compensation because Cisco already incurs that cost for business purposes. The incremental cost of third-party security vendors is their actual cost. The incremental cost for the authorized car service and personal security driver is the actual cost. Cisco does not consider the provision of such security to be a perquisite since the need for security arises from the nature of the executive officer’s employment by Cisco, the provision of such security is provided to mitigate risks to Cisco’s business, and the provision of such security is excludable from income under Internal Revenue Service (IRS) rules. Pursuant to SEC guidance, we have reported the aggregate incremental costs in the “All Other Compensation” column of the Summary Compensation Table.
Other items that are addressed in the perquisites discussion include health benefits, relocation benefits, and required business trips where spouses or partners are expected to attend. Cisco has long included a significant perquisites discussion in its CD&A, which has evolved over the years. It took its current form about three years ago when the company added information about the personal security arrangements while traveling for certain executive officers.
In addition to the foregoing, Cisco also provides detailed information about the actual perquisites received by certain of its named executive officers in fiscal 2019 in a footnote to its Summary Compensation Table. This information supplements what’s presented in the CD&A and addresses each individual item that was provided during the year. Collectively, this information offers a fairly complete picture of the company’s perquisites practices.
-Mark Borges, CompensationStandards.com November 27, 2019
