Definition
Executive perquisites, commonly known as “perks,” are non-cash benefits provided by a company to its top executives. These perks can range widely and often serve to attract, retain, and motivate key personnel. Perquisites go beyond regular salary and bonuses and can include things such as company vehicles, expense accounts, private jet usage, exclusive health and wellness programs, and memberships to private clubs.
Examples
- Company Cars: Many executives receive company cars, which are owned or leased by the company but used for personal and business purposes.
- Private Jet Access: Top executives may have exclusive access to a company-owned private jet for both business and personal travel.
- Club Memberships: Executives may receive memberships to exclusive clubs, such as golf or social clubs, fully paid by the company.
- Stock Options: The option to purchase company stock at a reduced price can be a significant financial incentive.
- Expense Accounts: These allow executives to charge travel, lodging, meals, and other expenses to the company.
Frequently Asked Questions (FAQ)
1. Why do companies offer executive perquisites?
Companies offer perquisites to attract, retain, and motivate top-level executives. These perks can make a compensation package more appealing and can also provide significant tax advantages for both the company and the executive.
2. Are executive perquisites taxable?
Generally, executive perquisites are considered taxable income. The IRS requires that these benefits be reported as part of an executive’s compensation. However, the specific tax treatment can vary depending on the type of perk and how it is used.
3. How do perquisites affect shareholder value?
Excessive or poorly justified perquisites can be viewed negatively by shareholders, particularly if they are disproportionate to the company’s financial performance. Such perks can also raise concerns about corporate governance and the alignment of executive interests with those of shareholders.
4. Can all employees receive perquisites?
Typically, executive perquisites are reserved for senior management. While lower-level employees might receive benefits, they usually do not receive the same level of perks as executives.
5. Are there regulations governing executive perquisites?
Yes, various regulations oversee the disclosure and tax treatment of executive perks. For instance, the Securities and Exchange Commission (SEC) requires publicly traded companies to disclose executive compensation, including perks, in their proxy statements.
Related Terms
- Stock Options: A benefit in the form of an option allowing executives to buy company stock at a reduced price.
- Deferred Compensation: A portion of an employee’s compensation that is set aside to be paid at a later date, often to provide tax benefits.
- Golden Parachute: A large financial compensation or substantial benefits guaranteed to an executive if they lose their job usually due to a merger or takeover.
- Fringe Benefits: Various extra benefits supplementing an employee’s salary, which can be for all employees or specific to executives.
- Corporate Governance: Mechanisms, processes, and relations by which corporations are controlled and directed.
Online References
- Investopedia: Perquisites - Investopedia Article
- SEC Guidelines on Executive Compensation
- IRS Taxable Fringe Benefits Guide
Suggested Books for Further Studies
- “Executive Compensation: A Strategic Guide for the 1990s” by Fred Cook
- “The Handbook of Employee Benefits: Health and Group Benefits” by Jerry S. Rosenbloom
- “Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences” by David Larcker and Brian Tayan
Fundamentals of Executive Perquisites: Business Management Basics Quiz
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