IV. How the Rule Works
- “Hot Button” Topic with Investors 7-12
- Trend Towards Eliminating Most Egregious Perks 7-13
- Definition of “Perk” 7-13
- Valuing Perks 7-13
- Perks Included When Determining NEO Status 7-14
- Location of Perks Disclosure 7-14
- Perk Justifications in CD&A 7-15
- Personal Use of Corporate Aircraft 7-15
- Personal Security Arrangements 7-17
- Overseas Assignment 7-17
- Trends in Director Perks 7-18
- Roadmap for Identifying & Valuing Perks 7-18
a. Identifying Perks 7-18
1. The Approach 7-19
2. Applying the Analysis 7-20
b. Valuing Perks 7-20
1. “Costless” Perks 7-21
2. Difficult to Determine Value 7-21
3. Reimbursement of Full Cost 7-22
4. Personal Use of Corporate Aircraft 7-23
V. Common Questions and Our Analysis
a. Perks Policies 7-24
1. Perk Policies & Form 8-K Disclosure 7-24
2. Perk Policy Limiting Payments on Insurance Premiums 7-25
3. Policy Not to Provide Perks 7-25
4. Use of Perks “Allowances” for General Use 7-25
5. Perks “Allowances” for Specified Use 7-26
b. Basic Disclosure Issues 7-26
1. Reporting Date for Perks 7-26
2. Reporting Cash In Lieu of Accrued Vacation 7-26
3. Detailed Description of Identified Perks 7-27
4. Perks & CD&A 7-27
5. Omitting Perks from the CD&A 7-28
6. Perk “Generally Available . . . to All Employees?” 7-29
c. Amount & Cost Issues 7-30
1. Increased Salary to Replace Perks 7-30
2. Definition of “Value Exceeds $10,000” 7-30
3. Report All Perks (Unless Aggregate Value Below $10,000) 7-31
4. NEO Cancels Vacation: Company Reimburses Pre-Paid Expenses 7-31
5. Perquisite Allowance Amounts 7-32
6. Fully Reimbursed Items 7-32
7. Establishing Reimbursement Amounts; Country Club Fees 7-32
d. Incremental Cost Formulas 7-33
1. Company-Owned Car & Incremental Cost 7-33
2. Chauffeur Services & Incremental Cost 7-33
3. Use “Time Spent” to Determine Incremental Cost for PersonalServices 7-33
4. Administrative Support for Directors 7-34
5. Disclosure If No Incremental Cost 7-34
e. Types of Perks 7-35
1. Potential Perks 7-35
2. Corporate Apartments 7-37
3. Club Memberships: “Exclusive Use” Test 7-38
4. Charitable Contributions/Award Programs/Matching Gifts 7-39
5. Legal Costs Reimbursement 7-41
6. Legal Fee Payments 7-41
7. Legal Expenses Reimbursement in Renegotiating Compensation Arrangement 7-41
8. Disclose Reimbursement of HSR Fees 7-43
9. Tax Reimbursements/Gross-Ups 7-43
10. Gross-Up Disclosure Timing 7-44
11. Medical Insurance Payments 7-44
12. Reimbursement of Medical Expenses 7-44
13. Life Insurance Plans 7-45
14. Discounted Insurance 7-46
15. Security Arrangements 7-47
16. Sporting & Entertainment Event Tickets 7-47
17. Weekend Getaway/Training 7-47
18. Vendor Gifts/Company Property Distributions 7-48
19. Relocation Services 7-48
20. Cash Allowance vs. Company-Owned Car 7-51
21. Cell Phones & Cell Phone Allowances 7-51
22. Business Travel Expense vs. Commuting Cost 7-52
23. Shuttle Service 7-54
24. Company Car Policy as Material Contract 7-55
25. Overseas Assignment 7-56
26. Company Products Use 7-56
27. Company Products Testing 7-56
28. Company Products Discounts 7-57
29. Personal Residence Use 7-57
30. Spouse Attending Business Dinner 7-58
31. Financial Planning Services 7-58
32. Foreign Tax Preparation Help 7-58
33. 401(k) Match 7-59
f. Airplane Use 7-59
1. Airplane Use Policy 7-59
2. Methods to Calculate Airplane Incremental Costs 7-59
3. Inclusion of Deadhead Flights in Incremental Cost 7-61
4. Definition of “Deadhead Flight” 7-61
5. First-Class Airfare as Perk 7-62
6. CEO Arranging Airplane Use for Other NEOs 7-62
7. Board Forces Officer to Use Airplane for Personal Use 7-62
8. Use of Standard Industry Fare Level (SIFL) 7-63
9. Disclosure of Reimbursement for Airplane Cost 7-63
10. Food & Magazines . 7-63
11. Plane Maintenance 7-64
12. Allocation of Airplane Depreciation 7-64
13. Use of Airplane for Another Company’s Board Meetings 7-64
14. One Director Flying on Another Director’s Airplane 7-64
15. Lost Tax Deduction for Airplane Personal Use 7-65
16. Reimbursement Amount for Personal Use 7-65
17. Reimbursement of Spousal Airplane Use 7-66
18. Reimbursing Director the Use of His Personal Plane 7-66
19. Use of Company Airplane to Travel to Company Retreat 7-67
20. Restricting Number of Executives on Same Plane 7-67
g. Definition of “Non-Discriminatory Basis” 7-68
1. Discriminatory Salary vs. Hourly Worker Perks 7-68
h. Director Perks 7-68
1. Distinction Between CEO & Director Commuting 7-68
2. Food Served During Director Meetings 7-68
3. Personal Benefits to Directors 7-69
4. iPad/Laptop 7-69
5. Non-employee Director Use of Corporate Aircraft 7-70
6. Director Health Insurance 7-71
7. Professional Association Memberships 7-71
8. Attendance or Sponsorship at Association Events 7-71
