Perquisite Disclosures

Summary

Covers rules requiring disclosure of
perquisites and other personal benefits received by named executive officers and directors

Per S-K 402(c), value must be disclosed in All Other Compensation column of Summary Compensation Table

Unless aggregate amount is less than $10,000

Each perquisite must be itemized in footnote disclosure

Value must also be disclosed if greater than $25,000 or 10% of total perquisites

Item 402(j) also requires disclosure of perquisites

In context of terminations / change-in-control

Requirements were changed in 2006

See SEC Rel 33-8732A At §II.C.1.e.i 9.08.06

Which amended requirements for the
Summary Compensation Table as part of
sweeping changes to executive compensation
disclosure requirements
Old disclosure threshold was the lesser of
either $50,000 or 10% of base salary and bonus

SEC still doesn't expressly define what's a perk

Provided guidance in March 2006 release
See What's a Perk immediately below

Personal use of corporate aircraft is a recurring issue

See Personal Aircraft Use

What's a Perk

SEC Guidance

SEC doesn't expressly define what's a perk

"We continue to believe that it is not appropriate for Item 402 to define perquisites or personal benefits, given that different forms of these items continue to develop, and thus a definition would become outdated."

Instead, provides principle based guidance

See SEC Rel 33-8655 2006
Also see SEC Rel 33-8732A At §II.C.1.e.i 9.08.06

An item is not a perquisite or personal benefit

"if it is integrally and directly related to the performance of the executives duties"
e.g., office space at a company business location, reserved parking space that is closer to business facilities but not otherwise preferential or additional clerical or secretarial services devoted to company matters

An item is a perquisite or personal benefit

"if it confers a direct or indirect benefit that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the company"
"unless it is generally available on a non-discriminatory basis to all employees"
e.g., Dompany-provided aircraft, yachts, commuter transportation services, additional clerical or secretarial services devoted to personal matters or investment management services

Business purpose and/or convenience to the company are irrelevant

Even if the company considers an item or service to be a necessary business expense, it's a perk if it is not integrally and directly related to the executives job performance

Typically considered a perk

Club memberships not used solely for business purposes
Personal financial or tax advice
Personal travel using company vehicles
Personal travel otherwise
Personal use of company property
Housing and other living expenses,
including relocation expenses

Security provided at a personal residence or during personal travel
Commuting services or expenses
Discounts on company products/services that are not generally available to employees on a non-discriminatory basis

Typically not considered a perk

Laptop or blackberry
Larger office
Business class travel to a business meeting
Business entertainment

Valuing Perks

Value is incremental cost of benefit to company

Not cost attributed for Federal income tax purposes

e.g, SIFL rates not incremental cost for aircraft usage
This confirms prior SEC interpretive guidance

See proposal release 33-8655 2006

SEC Releases

SEC Rel 33-8732A At §II.C.1.e.i 9.08.06

SEC Rel 33-8655 2006

SEC FAQs

S-K Item 402 FAQs

General FAQ 4.07

These FAQs were updated 8.08.07
Supersede old S-K 402 FAQs in 1997 Telephone Manual
and its March 1999 Supplement
See S-K 402 FAQs

SEC Enforcement

Buca 2006

SEC charges included undisclosed executive perquisites

CEO to pay penalty of $500,000;
Barred from being a public company officer or director

Tyson Foods 2005

Undisclosed executive perquisites

Company to pay penalty of $1.5 million
Chairman to pay penalty of $700,000

Form 8-K discloses enforcement action 8.16.04
Form 8-K discloses investigation 3.29.04

Walt Disney Company 2004

Undisclosed relationships with director relatives

Failure to disclose

Employment of directors' children
Compensation paid to a director's spouse
by a 50% subsidiary
Payments to a director for use of an airplane
Secretary, car and driver provided to a director

General Electric 2004

Insufficient disclosure of Chairman's post-retirement perks
SEC press release
C&D order

In re W R Grace & Co 1997

C&D order
Insufficient disclosure of CEO retirement package
Undisclosed corporate dealings with an executive relative

Precedent Perquisite Disclosures 2008

SEC comment letters:
SEC staff review of 2007 executive pay disclosures

Charles Schwab

2007 Proxy Statement
NEOs other than Charles Schwab receive perquisites allowance in lieu of in-kind perquisites
SEC requested detail on compensation committee discretion and specific items covered by allowance
Company response 9.21.07
In future filings, we plan to revise our disclosure to provide a clearer explanation of the perquisite allowance to avoid any misunderstanding that it is anything but a cash payment and to avoid any implication that there are enumerated items from which an executive may choose.
SEC clearance letter 1.09.08
2008 Proxy Statement pending - March 2008

Adobe

CD&A Narrative at page 43

Limited perquisites to executive officers
Note policy on use of Marquis Jet Card Program for business travel
Family members may join executive on business travel
only if all personal costs for family members are paid for by executive

See also footnote (4) to Summary Compensation Table

No perquisites reportable as All Other Compensation

Goldman Sachs

CD&A Narrative at page 22
Includes discussion of rationale for various perquisites
See also footnote (6) to Summary Compensation Table

Detail with regard to incremental cost of perks

Goodyear

CD&A Narrative at page 31

Concise statement of rationale for each perk

See also footnote (6) to Summary Compensation Table

Detail with regard to incremental cost of perks

Macy's

CD&A Narrative at page 41

Concise statement of rationale for each perk

See also footnote (4) to Summary Compensation Table

Detail with regard to incremental cost of perks

Texas Instruments

See footnote (10) to Summary Compensation Table

In the interest of transparency, the value of perquisites and other personal benefits is provided in this column even if the amount is less than the reporting threshold established by the SEC page 31

Precedent Perquisite Disclosures Transition to New Rules

Precedent Changes in Practices

In anticipation of continued scrutiny, some companies eliminated or modified their practices prior to effective date of new rules
We anticipate seeing more "no perks" and "reduced perks" disclosures in response to the new executive compensation disclosure rules and related developments

Intel (page 23) and Potlatch (page 18) reported in 2006 Proxy Statement an "egalitarian culture" with regard to personal benefits
Alcoa, Berkshire Hathaway, and Sears Holdings reported in 2006 Proxy Statements outside directors paid only in cash
Humana Proxy Statement
Car allowances rolled into executive salaries in March 2005
Lockheed Martin Form 8-K
Eliminated perquisites, with one-time salary adjustments, for executives
IBM Form 8-K
Terminated director stock plan, and increased annual retainer paid to directors, effective 01.01.07
General Mills Form 8-K
CEO will reimburse company for personal use of corporate aircraft in excess of $50,000 aggregate incremental cost
Standard Register Proxy Statement
In December 2006, cash perquisite accounts were eliminated and added to base salary for 2007
Lear Corporation Form 10-K
Beginning in 2006, transitioned from provision of individual perquisites to provision of perquisite allowance (greater of 7.5% base salary and $42,000 for fiscal year 2006)

Precedent Perquisite Disclosures Spousal Activities

2007

Analysis often triggered when spouse joins director or executive officer for business-related function or company-sponsored event at which meals, travel, lodging, or recreational activities are paid for by company

Sample of precedent disclosures on spousal activities

Exelon

See discussion of directors' Other Compensation
See also Note 17 to Summary Compensation Table

Rockwell Automation

See discussion of directors' Other Awards and Benefits
See also Footnote 1 to Summary Compensation Table

Time Warner

See discussion of directors' Expenses
No mention in Summary Compensation Table

Precedent Perquisite Disclosures Perks Archive

2007

Alcoa

CD&A Narrative at page 25

Eliminated reimbursement for club dues during 2006
Eliminated income tax preparation service and financial planning benefits beginning in 2007
Named executive officers each received an increase in 2007 salary in the amount of $6,500

Baker Hughes

CD&A Narrative at page 26
Perquisites allowance provided on quarterly basis

Detail in footnotes to Summary Compensation Table
at page 35 -36

Director perquisites limited to spousal airfare and meals

Cracker Barrel

CD&A Narrative at page 25

No company cars, club memberships, security, drivers, financial or legal planning, or personal use of corporate aircraft
Also no SERP or defined benefit pension plan

Eli Lilly and Company

CD&A Narrative
See also All Other Compensation Chart

Included in footnotes to Summary Compensation Table at page 31
Reportable for CEO only and limited to personal use of corporate jet

Fiserv

CD&A Narrative at page 30
"no perks" disclosure

H.J. Heinz

CD&A Narrative at page 37
Notable disclosure of compensation objectives for perquisites program

Intel

CD&A Narrative at page 27
"no perks" disclosure

ITT Educational

CD&A Narrative at page 32
Notable valuation methodologies for company car, financial planning, event tickets, enhanced disability benefits, and relocation

Detail in footnote (5) to Summary Compensation Table

Kinder Morgan

CD&A Narrative at page 32
No perquisites (no company cars or executive car allowances, no financial planning services, no corporate jet or payment for first class tickets)
Below competitive levels for comparable companies, but no plans to change "no perks" policy

McDermott International

CD&A Narrative
Limited to personal use of corporate aircraft

Detail in footnote (5) to Summary Compensation Table
at page 27

No perquisites reported for directors

Merck

CD&A narrative

Note valuation methodology for person use of corporate aircraft and limousine services

See also All Other Compensation Chart

Included in footnote (7) to Summary Compensation Table
at page 34
Detailed table with perks listed and valued

No perquisites reported for directors

Potlatch

CD&A Narrative
No perquisites other than reimbursement of certain relocation expenses
See also footnote 8 to Summary Compensation Table

Ryder

See Form 8-K
New severance benefits that, among other things, eliminated certain perquisites effective 1.01.07

Schlumberger

CD&A Narrative
See also Summary Compensation Table

Included in footnotes 7 -13

No perquisites reported for directors

Sunpower

No perquisites reported in Summary Compensation Table or Director Compensation Table
See also 2007 proxy statement

SunTrust Banks

CD&A Narrative at page 19
Note discussion of incremental cost for personal use of corporate jet at Footnote (6)(A) to Summary Compensation Table

United Health Preliminary Proxy Statement

CD&A Narrative

Reports elimination of traditional perks

See also Summary Compensation Table

Detail in footnote (4)

United Technologies

CD&A Narrative at pages 11 -12

Perquisite allowance of 8% of salary (12% for certain executives) paid in lieu of in-kind perquisites
May be allocated in part to leased vehicle, deferred up to 50%, or paid in cash
Does not cover personal use of corporate aircraft