What Are Perquisites And What Role Do They Play In Executive Compensation Packages?

Posted: August 25, 2020

While you may not be familiar with the term “perquisite”, you’ve very likely heard of the word “perk”. Yes, that’s right. Perk is an abbreviation of perquisite. Perk is a term casually used throughout our culture to encompass benefits, money, or goods that one is entitled to due to a particular status. Maybe perks come with being a member of a club or group. The term perquisite however, is a little more focused on the benefits of being an employee or shareholder of a company. These can include an array of benefits as a result of that particular status. Generally speaking, perquisites refer to non-cash benefits or privileges that are awarded to employees. These are given on top of normal pay, commissions, or incentives. Think of free company parking or complimentary access to an athletic club. These are the types of things that may be rewarded with employment that act as extra benefits. Perquisites are commonly included in executive compensation packages and play an important role in providing a competitive and enticing offering for oncoming executives. It is important to note that perquisites may be scrutinized and be judged under government regulations. Though perquisites have long been a part of executive compensation packages, many companies are scaling back on them in order to avoid the scrutiny. The SEC requires an annual disclosure of perquisites awarded to executives. The benefits must be included in wages for tax purposes. In 2018, after 3 years of investigation, Dow Chemical was cited and charged for improper discolsure of perquisites awarded to ex-Chief Executive Andrew Liveris. So long as perquisites are properly accounted for, they still represent a useful addition to executive salaries. Perquisites generally differ from cash or equity compensation and often provide smaller and more immediate benefits. Comprehensive executive compensation packages are likely to use a mix of salary, short and long-term incentives, and perquisites to create a satisfactory executive offer. Balancing all of these elements is key for a company when considering a successful executive compensation package. All of these elements of a compensation package should be used in harmony. Compensation strategy can leverage the strengths of each type of benefit. Short-term incentives can be cash-based bonuses that encourage individual performance, whereas long-term incentives may be more focused on the impact an executive may have on the entire organization over the span of years or more. Perquisites are auxiliary benefits that aren’t based on performance directly. They may include things like paid meals and lodging or the use of certain facilities. Membership offers to various clubs can be considered perquisites. Company-owned vehicles, computers, or cell-phones are all items that can be included in an executive compensation package under the title of perquisites. It can be seen that perquisites are a great supplement to executive salaries and incentives and should be considered in any executive compensation package. When it comes to incentive design companies should absolutely be including perquisites in the conversation. They can include a lot of additional benefits and need to be reported adequately in order to comply with regulations. Together, perquisites, salary, and incentives can create a balanced executive compensation package. To learn more about perquisities or maximizing executive salary, visit our Contact Page, or contact us directly by email at fglassner@veritasecc.com or by phone at 415-618-6060.