Thought you might find the article below interesting. The SEC fined Dow Chemical $1.75M for improperly reporting executive travel benefits on the corporate aircraft. Dow applied the "business purpose" test as opposed to the preferred "perquisite test."
VanAllen recently surveyed 19 large corporations. Personal use was benchmarked and 10 of the 19 companies (53%) had some form of personal use. Of those 9 companies, personal use accounted for roughly 8% of all flying hours... a noteworthy total.
For the forum:
1.) Do you permit personal use?
2.) If so, what method is used to determine applicability and the imputed income?
3.) Do you audit your procedures and documentation?
Dow, SEC Settle Exec Perk Disclosure Claims For $1.75M
Law360 (July 3, 2018, 4:56 PM EDT) -- The U.S. Securities and Exchange Commission has hit Dow Chemical Co. with a $1.75 million fine as part of the company’s offer to settle claims that it violated U.S. securities law by failing to properly disclose executive perks, including roughly $3 million worth to its chief executive officer.
In addition to the $1.75 million civil penalty, Dow Chemical agreed to hire an independent consultant to review the company’s executive perk disclosure policies and procedures and suggest changes, which the company would then implement, according to the commission’s Monday order instituting a cease-and-desist proceeding. The consultant will be hired for a year and paid for at the company’s own expense, the order said.
The order alleged that Dow Chemical didn’t use the proper standard required by the commission for determining whether a benefit provided to an executive was a perquisite, or perk. The commission’s so-called perquisite test says that a benefit is a perk unless it is “integrally and directly related to the performance of the executive’s duties,” regardless of whether it serves a business purpose or is a convenience to the company, the order said.
Dow Chemical instead used the business purpose test, a standard that the commission had considered, but rejected, when it issued the new disclosure rules in 2006, according to the order.
Because Dow Chemical used the wrong standard for its perk disclosures between 2011 and 2015, the disclosures in its proxy statements between 2013 and 2016 misstated the amount of perks received by its executives, the order said. About $3 million in perks for its chief executive officer weren’t disclosed as a result of the error, according to the order.
The order said that the perks, which were authorized by the company though not disclosed, included the personal use of Dow Chemical aircraft.
Rebecca Bentley, a spokesperson for Dow Chemical, told Law360 on Tuesday that the company had already begun to implement changes to better disclose perks and looked forward to working with an independent consultant to further improve its disclosures. She also said that the company neither admitted to nor denied the allegations from the commission.
“Dow cooperated with the SEC throughout this process and, while the company could have continued with the matter, has chosen to settle to achieve finality and bring clarity to future disclosure decisions,” Bentley said. “The expenses at issue were legitimate business expenses authorized by Dow and within the scope of executive job duties. This matter was not about whether the expenses should have been incurred, but only how they were classified for disclosure purposes.”
A spokesperson for the SEC declined to comment Tuesday beyond the commission’s order and administrative summary.
Mary S. Brady, Adam S. Ross, Michael F. D’Angelo and Jaqueline M. Moessner conducted the investigation, according to the commission’s administrative summary.