SEC’s Ongoing Scrutiny of Executive Perquisites and Benefits

Sonia Gupta Barros, W. Hardy Callcott, and Barry W. Rashkover are partners at Sidley Austin LLP. This post is based on a Sidley memorandum by Ms. Barros, Mr.Callcott, Mr. Rashkover, and Sarah K. Gromet. Related research from the Program on Corporate Governance includes Stealth Compensation Via Retirement Benefits by Lucian Bebchuk and Jesse M. Fried.

On August 4, 2021, the U.S. Securities and Exchange Commission (SEC or Commission) announced settled charges against National Beverage Corp. (NBC) relating to NBC’s failure to disclose executive perquisites provided to its CEO. [1] The SEC’s fifth perquisite case in a little over a year, this settlement signals the Commission’s continued focus on undisclosed perks, a priority articulated in 2020.

In National Beverage Corp., the SEC charged NBC with failure to evaluate and disclose executive perquisites granted to its CEO. According to the settlement, NBC’s CEO took 33 trips between 2016 and 2020 that were financed by NBC but not “integrally and directly related to the CEO’s job duties.” NBC failed to disclose the cost of these trips in its proxy statements and Forms 10-K, resulting in understated CEO compensation of approximately $1.5 million between fiscal years 2016 and 2020. The SEC determined that this failure stemmed from NBC’s inadequate controls relating to perquisite disclosures, noting that NBC did not analyze whether the CEO’s flights were directly related to his duties, nor did NBC provide adequate training to employees tasked with drafting the executive compensation sections of NBC’s proxy statements. As a result, the SEC found that NBC violated Sections 13(a) and 14(a) of the Exchange Act and Exchange Act Rules 13a-15(a), 13a-1, 12(b)-20, 14a-3, and 14a-9. [2] NBC agreed to a civil penalty of $481,000 to settle the SEC’s charges. [3]

Key Takeaways

  1. Continued Priority. The SEC remains committed to policing companies for failures relating to disclosure of executive perquisites and benefits. In conjunction with the first of its recent settlements, the SEC pledged to “continue to focus on whether companies are fully disclosing compensation paid to their top executives and have appropriate internal controls in place to ensure that shareholders receive information to which they are entitled.” [4]
  2. Enhancing Controls. Companies should establish or enhance perquisite policies and procedures, including training for employees involved in the process for identifying, valuing, or administering perquisites, as well as those involved in disclosure and reporting. Each of the five recent cases have involved findings of varied internal controls shortcomings — for example, failing to track whether corporate jet flights were integrally and directly related to executive job functions in National Beverage Corp, to failure to implement expense reimbursement policies and procedures in RCI Hospitality Holdings, Inc., to applying the wrong standard to evaluate whether items constituted perquisites in Hilton Worldwide Holdings, Inc. [5]
  3. Lower Penalties. Demonstrating internal controls enhancements can result in lower civil penalties if the SEC brings charges. Although the National Beverage Corp. order does not note this, orders in other perquisite cases, such as RCI Hospitality Holdings, Inc., do cite recent enhancements as a reason for reduced fines. [6]
  4. Personnel Changes. More egregious violations may necessitate changes in corporate leadership. [7]

Public companies and their officials should not be surprised to see additional SEC perquisite disclosure enforcement actions in the not-distant future.


1National Beverage Corp., Exch. Act Rel. No. 92560 (Aug. 4, 2021). The Exchange Act requires public companies’ proxy statements disclose “the total value of all perquisites and other personal benefits provided to named executive officers who receive at least $10,000 work of such items in a given year.” Any items not “integrally and directly related to” an executive’s duties constitute a perquisite of personal benefit.(go back)

2Section 13(a) and Rule 13a-15(a) thereunder require certain public companies to “maintain disclosure controls and procedures designed to ensure that information required to be disclosed by the issuer is included in [filed] reports.” Section 13(a) and Rules 13a-1 and 12b-20 thereunder require certain public companies to file information and reports with the Commission as required and mandates that these filings not be misleading. Section 14(a) and Rules 14a-3 and 14a-9 thereunder prohibit (1) omission of executive compensation disclosures from proxy statements and (2) “the use of proxy statements containing materially false of misdealing statements or omissions.” In re National Beverage Corp. (Aug. 4, 2021).(go back)

3This penalty is comparable to the $600,000 fine levied against Hilton for its failure to disclose $1.7 million in travel-related perquisites.(go back)

4Press Release, SEC, Insurance Company Settles SEC Charges for Failing to Disclose Executive Perks (June 4, 2020), back)

5“In the absence of expense reimbursement controls, persons approving reimbursement requests would use their judgment.” RCI Hospitality Holdings, Inc., Exch. Act Rel. No. 89935 (Sept. 21, 2020). Hilton considered perquisites only those items for which there was no business purpose rather than assess whether the items were “integrally and directly related to job performance.” Hilton Worldwide Holdings, Inc., Exch. Rel. No. 90052 (Sept. 30, 2020).(go back)

6RCI Hospitality Holdings, Inc.’s remedial efforts included, “engagement of a third-party consultant to assist in reviewing and revising its executive compensation process, policies and controls; and…implementing new internal controls and compliance policies and procedures concerning perquisites, aircraft usage, expense reimbursement, travel, and charitable contributions….” The SEC noted that it had considered these remedial efforts in determining to accept RCI’s settlement offer. RCI Hospitality Holdings, Inc., Exch. Act Rel. No. 89935 (Sept. 21, 2020).(go back)

7The five recent cases involved charges against public companies. In connection with two of these cases, the SEC pursued separate actions against the recipient of the undisclosed perquisites.(go back)

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