The tragic homicide of Brian Thompson, CEO of UnitedHealthcare, has highlighted critical vulnerabilities in the safety and security of corporate executives. This event was a grim reminder that high-ranking executives often face unique security risks due to their prominence and visibility. This heartbreaking incident underscores the urgent need to rethink how security measures are reported and prioritized in disclosures mandated by the Securities Exchange Act of 1934, and whether it is equitable to continue to tax executives for personal use of corporate aircraft mandated by the Board for his or her safety and security.
Specifically, this article advocates for creating a "security measures" category within "All Other Compensation" in executive compensation tables, thereby largely eliminating the inclusion of "personal use of corporate aircraft" within the "perquisite" category, to enhance transparency and better reflect modern corporate realities.
A Shift in Perspective: Corporate Aircraft as a Security Tool
Traditionally, the personal use of corporate aircraft by executives has been framed as a luxury or perk (i.e., a personal benefit not generally available on a non-discriminatory basis to all employees that is not integrally and directly related to the performance of the executive's duties). However, in light of escalating security threats, this perspective is outdated; executives' safety and security is essential to their ability to perform their duties. Corporate aircraft offer a secure, safe and controlled mode of transportation that significantly reduces executives' exposure to risk.
Public travel increases the likelihood of executives being tracked, confronted, or targeted by individuals with malicious intent. Corporate aircraft eliminate these vulnerabilities by providing a secure, private, and direct mode of transportation.[1] Additionally, these aircraft can be equipped with enhanced security measures tailored to the specific risks executives face, including real-time threat assessment systems and secure communication tools.
The Problem with the Current "All Other Compensation" Column
The "All Other Compensation" column in executive compensation disclosure tables in public company reports under securities laws is intended to provide transparency to shareholders regarding, among other compensation items, executive perquisites. However, this disclosure often fails to distinguish between perquisites and legitimate security needs. For many executives, especially those leading high-profile or controversial organizations, use of corporate aircraft is not a luxury but a necessity for ensuring personal safety and operational efficiency. In many companies, and no doubt in light of recent events in many more, the Board will require high-profile executives to fly aboard company-operated aircraft for ALL of their transportation needs, whether business or "personal."
Labeling such usage for non-business related travel as "personal" inadvertently downplays its critical security function, creating a misleading perception among shareholders and the public. Worse, it may deter companies from implementing robust security protocols for fear of shareholder backlash over perceived extravagance.
Change the way security related expenses are disclosed.
My colleague Brad Goldberg at Cooley posits an argument that "personal travel on corporate aircraft or with a company-provided car and driver that is mandated pursuant to a company's security protocols should not be treated as a perquisite for compensation disclosure purposes." https://www.cooley.com/news/insight/2024/2024-12-23-should-sec-revisit-executive-security-perquisite-disclosure. This is because, he argues, the company's provision of such security mechanisms is "integrally and directly related" to the performance of the executive's duties (and therefore not within the SEC definition of a perquisite).
Here's the thing: the executive is at risk of harm for only one reason -his or her role in the company serving shareholders. Other than that, he or she would be John Smith or Jane Doe going about their business in the cloak of anonymity like the rest of us. There should be no stigma attached to protecting these executives. But, I assume, that because it appears that using a corporate aircraft is a luxury, without considering the security context, the incremental cost to the company of providing the aircraft to the executive for personal use mandated by the board has traditionally been treated as perquisite under existing SEC guidance.
While I am in agreement with Goldberg's conclusions, if the SEC is not willing to change its guidance, an alternative to concluding that security-related benefits are not perquisites, could be that we replace the inclusion of "personal use of corporate aircraft" (and other security benefits) as a perquisite in the "All Other Compensation" column with a "security measures" category. This would address several key issues:
Some may argue that changing the categories of compensation items included in the "All Other Compensation" column could reduce transparency. However, this concern can be mitigated by requiring aggregated or anonymized data about security measures to maintain transparency without compromising executive safety.
Don't Tax Executives for Use of Corporate Aircraft.
In addition to SEC disclosure, an executive pays income tax on the value of his or her personal use of the company aircraft (which the IRS has concluded is a fringe benefit) based upon an IRS formula, and the company suffers a disallowance of deductions if the use was for "entertainment" purposes. I would argue that the executive (and the company) should not be punished with income tax, or the company with a reduction in income tax benefits, for taking steps to protect the safety and security of its executives, if there is adequate support for the company's conclusion that the executive is at risk through a security assessment that meets the IRS' requirements. The threat being addressed is not something created by the executive, but one endemic to his or her position, and charging income tax to an at-risk executive (and by implication his or her family) runs counter to the theory of the Internal Revenue Code that an employee should be taxed for a "goody" provided by the employer. The current paradigm of treating personal use of employer-provided aircraft as a fringe benefit taxable to the employee (albeit reduced somewhat if there is a security study) just doesn't meet the test of common sense in the current environment.
Conclusion
The murder of Brian Thompson is a sobering reminder of the real dangers faced by corporate executives and the need for robust protective measures. By making meaningful changes to the disclosure and tax paradigms, we can honor the memory of leaders like Thompson and create a safer environment for those who bear the heavy responsibility of guiding our largest organizations.