Page 279 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 6. Employee Benefits and Perquisites 265

unhappy executives are sandwiched in among vacationers and small children—not the most
conducive environment for getting some work done or resting prior to a meeting shortly
after arrival. Not surprisingly, first-class travel often scores high with executives.

Home Entertainment. A variation, or in some cases an extension, of club memberships is
reimbursement for home entertainment expenses associated with business purposes. Activities
can range from lawn parties to indoor formal dining with extensive catering, probably the
norm rather than the exception. Such a policy may be either a simple reimbursement or a
stated annual allowance. In any event, the company receives a deduction for its expenses, and
the individual avoids an income liability on documented business expenses. This benefit is of
moderate importance, but could be high if considerable entertainment is needed.
Personal Escort. In addition to providing first-class travel, some companies ensure that
their top executives are met at the airport and have a personal escort to their hotel. Usually
the executive will be checked in and out by the “host,” thus saving tedious minutes in
lobby lines. It is the host’s responsibility to ensure that the hotel accommodations are fully
satisfactory, including catering to individual whims (e.g., putting the proper brand of Scotch
in the room). This fluff treatment is probably moderate in importance.
Season Tickets. Whether for sporting events or the arts (e.g., opera, ballet, and theater),
season tickets are deductible under the earlier-described rules of business entertainment.
Therefore, in addition to providing choice locations for hard-to-get events, this perk is
very tax effective. However, sky boxes and other luxury boxes are tax deductible only to
the amount of nonluxury box seats per Section 274(1) of the IRC, thereby limiting this
moderate-importance perk.

Spouse Travel. Because of the IRS requirement that a clear business need must exist for the
spouse to accompany the executive on a business trip in order for the spouse’s travel expens-
es not to be considered income, use of this perquisite is limited to this narrow definition.
Thus, this type of perquisite is determined on a case-by-case basis. A key factor is whether or
not spouses are expected to attend because of the scheduled events. Due to the business
nature, this perquisite often extends down rather far in the management ranks, depending on
circumstances. In many instances, some level of senior management must specifically approve
the individual request, and company policy may limit the number of annual trips. Companies
must also determine if spousal travel is broadened to include “significant others.” Also at
question are same-sex partners. However, even when spouse travel expenses are considered
income, they may not be considered wages; therefore, while reportable, withholding taxes
may not apply. Executive interest is probably moderate.

Work Area
The office is another very visible service program or perquisite. By using different character-
istics of office spaces, it is rather easy to develop a hierarchy to reflect organization status. In
addition to location, an office’s size, number of windows, type of furniture (including arm-
chairs and sofas), extent and quality of alcoholic beverages, quality of carpeting and drapes,
access to massage therapy, manicures, and shoeshine service, and number and type of paint-
ings and sculptures are all visible means of projecting the executive’s importance. While there
have been some questions regarding extremely expensive, original artwork, such items are
normally a business expense to the company and escape tax liability to the executive.