Could the SEC's Enforcement Spotlight Return to Executive Perks?
The Securities and Exchange Commission ("SEC") is hosting a roundtable discussion on disclosures just weeks after reports of significant increases in executive perks.
Executive perk disclosures are a perennial SEC enforcement subject, typically generating two or three cases each year. These disclosures present unique risks, given the SEC's expansive view of what constitutes a "perk," the low-dollar thresholds for disclosures, and the absence of any scienter requirement for violations. And as we've noted before [SEC Scrutiny of Executive Perks Brings Pitfalls for Companies], travel-related perks are by far the most common targets of SEC enforcement, appearing in nearly every perks-related case the agency has filed in the last 10 years.
A recent spike in executive perks could prompt greater SEC focus on these disclosures. Corporate governance analyst Glass Lewis recently reported that total perks paid to CEOs in 2023 had increased 31% from levels seen four years earlier, driven primarily by growth in executive aircraft use and personal security. Both the value of CEO air travel and the number of companies providing it grew sharply from 2019 to 2023, while personal security payments more than doubled in that span. Depending on the dollar value of these benefits, SEC guidance may require their disclosure, even if business-related, unless they are "integral" to an executive's job or provided generally to all employees.
At the same time, the SEC is returning its gaze to executive compensation generally, starting with a June 26, 2025, roundtable on executive compensation disclosure requirements. While this roundtable will likely focus on revisiting the expanded executive compensation rules enacted under the last administration, the prioritization of this issue so early in the new administration underscores the agency's ongoing interest in all facets of executive compensation disclosure, including perks.
Given these developments, issuers may want to review their executive perk disclosure practices to confirm compliance with SEC rules and to minimize enforcement risk. This includes:
- Ensuring that you're correctly and consistently applying the SEC's narrowly tailored "integrally-and-directly related" disclosure standard;
- Paying close attention to executive travel and security expenses;
- Strengthening documentation requirements for all executive benefits, but especially travel; and
- Regularly training executives and disclosure professionals on the SEC's rules.
