A Farewell to Perks?

The SEC's new compensation-disclosure rules could mean the end of luxurious wine cellars and questionable stipends.

Few things enrage shareholder activists—especially those who fly coach—as much as executive perks.

In the scandals of recent years there have been some doozies exposed, like the $2 million party for Dennis Koslowski’s wife. And plenty of exemplary companies, like General Electric Co., have suffered embarrassment from them, too. Kerr-McGee Corp. even paid its chief executive to do volunteer work, according to www.footnoted.org. (Using language from the energy company’s 2005 proxy statement, the investor website revealed that the energy company’s CEO, in addition to annual pay of $3 million, received an $87,000 stipend to “facilitate community involvement.”)

Perquisites are not pure excess, of course. Among the many studies supporting the use of executive aircraft, for example, was a 2004 study by Raghuram Rajan of the International Monetary Fund and Julie Wulf of the University of Pennsylvania’s Wharton School measuring productive boosts resulting from access to the corporate jet. And a company’s paying for personal financial counseling, for example, may ensure that its executive doesn’t spend working hours wondering when to exercise all those options.

But perks may occasionally be driven by ego. A wine cellar stocked at company expense may provide more gratification to a wealthy executive than would a check for another $20,000. To critics, that’s what makes perks so corrosive: they confer added status on executives who are already sitting near the top rung of the social ladder. “Perks tend to create almost a class distinction,” argues John Wilcox, head of corporate governance for TIAA-CREF. “They separate the senior people from the rest of the employees.”

In any case, say some compensation experts, the Securities and Exchange Commission’s new compensation-disclosure rules that take effect next year could usher out the most excessive perks—at least those that would be hardest to explain in the compensation discussion and analysis.

Also disappearing will be some that were never disclosed in the first place. “We’ll never know how bad it really was with respect to perks and other forms of compensation,” says Patrick McGurn of Institutional Shareholder Services. “They’ll be gone before they’re ever reported.”

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