The executive benefits and perquisites landscape may make you recall lessons from high school geology. Movement is often slow, but can result in dramatic shifts.
As the competitive landscape adjusts to economic and societal forces, so do the ways companies seek to attract and retain their key executives. To find out whether (or how) benefits and perks for CEOs, senior executives and other company leaders have changed in recent years, Ayco, a Goldman Sachs company, conducted the 2017 Executive Benefits Survey.
Responses came from 302 participants, including some heavy hitters: 45% of the S&P 100, 40% of the Fortune 200, and 30% of the S&P 500 were represented.
Responses to the Ayco survey indicated relative stability in the executive benefits arena. While 8% of those who completed the survey reported adding or expanding eligibility for one or more benefit, 5% said they had eliminated one or more.
Rich Friedman, Vice President & COO of Ayco’s Benefits and Compensation Group, sums up recent activity: “There has been relative stability in most of the executive perks over the past decade, especially for perquisites that deliver shareholder value.”
As Scrutiny Increases, Use of Perquisites Levels (Or Decreases)
Still, there was a slight decline in the use of perquisites for executives over the past decade, as demonstrated through comparison of the 2007 and 2017 Ayco surveys. This reduction is primarily due to a sharper focus on executive pay practices, which must now be clearly and fully disclosed publicly.
There was a steep decline in company-provided country club membership for executives (as defined by the responding firms). In 2007, 27% received such memberships as part of their compensation package. In 2017, that figure had dropped to 11%. In another significant decline, a company car or car allowance was given to 47% of executives in 2007, compared to 29% in 2017.
The Ayco survey reports, “One of the more popular executive transportation benefits is use of a company car or payment of a car allowance. We asked survey participants to provide the dollar amount of any allowance offered to each category of executives [CEO, Senior Executives, Other Executives].”
Responses showed the average annual allowance for the 50 firms responding relative to their CEO as $23,900 per year in 2017. For the 58 firms giving a response about their Senior Executives, the average annual allowance was $19,300, and for the 40 providing responses for their Other Executives, $14,200.
A few responding companies (8%) provide executives with a cash allowance that may be used to pay for their executive perquisites. For CEOs among the 23 firms responding on their behalf, the average annual allowance was $18,130. Senior Executives averaged $16,480 at the 24 responding companies, and the 19 companies providing information about Other Executives reported an average annual allowance of $10,260.
Voluntary Benefits On the Rise for Executives, All Employees
As company-provided benefits and perks declined, voluntary benefits—those which are paid by the employee—increased. For example, in 2007, 21% of executives were offered a group legal insurance product; in 2017, the figure increased to 54%. That’s similar to auto/homeowners voluntary insurance, which increased from 31% in 2007 to 48% in 2017.
Friedman says, “Voluntary benefits, which are generally broad-based, have shown some significant increases over time.” He pointed out two in particular: pet insurance went from 9% in 2007 to 31% in 2017, and ID protection rose from a mere 2% in 2007, reaching 31% in 2017. This, he said, is likely due to the increase in widespread security lapses.
Among voluntary benefit offerings, financial education/retirement planning was one of the most popular, with 48% of respondents offering it. It was also the only one noted in the survey that was sometimes offered exclusively to executives; the other voluntary benefits about which the survey inquired were offered across the board to all employees. These included 529 college savings plans, elder/child care assistance, and on-site medical services.
Perks = Pay = Tax Liability
Taxation of executive perquisites continues to be an issue for companies and for the executives involved. “As a general rule,” says the report, “the cost of providing executive perquisites results in taxable income to the executive and is deductible to the company.” They point companies to IRS Announcement 85-113 for guidance on imputing income related to these perks, and point out that some companies reimburse or gross-up pay to offset additional taxes to the executives. Most of the companies doing so, however, are either foreign-owned or privately held, and not subject to the same disclosure rules as U.S. public companies.
When companies choose to impute income (monthly, quarterly, annually) varies from company to company, according to the survey. “There is no uniformity in the timing of imputation for company paid executive perks; it seems to be a matter of company payroll policy,” said Friedman. “However we have seen a decrease in any tax gross-ups, in large part due to corporate governance groups policies and SEC disclosure requirements.”