Perquisites Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The Revised and Updated Illustrated Oxford Dictionary defines perquisite as “an extra profit or allowance additional to a main income” and also as “an incidental benefit attached to employment.” A perquisite is informally called a perk; a company car is a common perk for mid and upper-management positions. Other examples of perquisites range from legal services to employee assistance hotlines. Although common fringe benefits such as health insurance are provided for all employees irrespective of their positions in the managerial hierarchy, perquisites are not so common and are more preferred with increased income. A perquisite such as an in-town apartment, for example, will not be available for employees throughout the company—only for top-level executives.

Perquisites are benefits quantifiable in monetary terms, provided for executives for their personal use and not available to nonexecutive employees. Perquisites are parts of tangible managerial rewards, along with bonus, salary, stock awards, and promotions. Notwithstanding this tangible quality, perquisites are valued for an intangible aspect, too: as status symbols. A coveted perquisite such as a country club membership not only allows the employee access to that facility, but also provides some attributes of raised status. Thus, employees in all businesses in practically all locations prefer some perquisite or other.

Rationale

Perquisites have achieved popularity partly because of their ability to motivate senior executives. Although most executives long for increased pay, additional pay is often not a strong-enough motivator at upper levels of the firm, where executive compensation is already rather high. These executives do not have pronounced needs for food, shelter, or other basic amenities of life. They are generally at a stage in their lives where they crave more status or self-esteem. Thus, a psychology based explanation exists for the presence of perquisites in organizations.

Cultural Aspects

Some perquisites are common around the world; others are specific to location, need, and firm. Among globally common and established perquisites are the use of company cars, corner offices, and the services of assistants. Although access to a company car for personal use usually is available at middle-management level and higher, personal assistants usually are available only to top-level executives.

Perquisites that are not universal are often rather location specific. Some perquisites that are widely popular in the Western world are not valued much on the other side of the globe. Examples include mortgage support, in-town apartments, and country club memberships. Cultural attributes and habitual preferences influence which perquisites are valued in any given part of the world. The aforementioned examples are preferred in the West because they fit well with the Western lifestyle and value system.

Similarly, in Asian or south Asian countries, especially the Indian subcontinent, one can find perquisites that entail additional services of other human beings. It is not uncommon in Asia for a top-level executive to have a chauffeur (in addition to the company car), a personal assistant at work, a cook (for his house), and even a gardener.

Some perquisites are heavily country specific, such as bodyguards for executives in Brazil. Affluent businesspeople and executives of big companies are frequent targets for kidnapping in Brazil; this vulnerability alone necessitates bodyguards for mid and top-level executives in that country.

Tax Aspects and Problems

Another significant aspect that affects the desirability of perquisites is tax rates. Since 1978 the U.S. Securities and Exchange Commission has required U.S. companies to reveal the monetary worth of the perquisites that their executive officers enjoy. During the same year, the Internal Revenue Service decided to impose taxes on perquisites. In fact, the Internal Revenue Code of 1954 demanded that the value of perquisites and other benefits be reported as income to the extent that the executives consumed these benefits for personal use.

Despite the code, disclosing the monetary value of perquisites was not compulsory back then. It was not until 1978 that both the disclosure law and stronger enforcement of taxation simultaneously came into effect, resulting in the lower after-tax value—and, therefore, reduced attractiveness—of perquisites. U.S. executives shifted their desires from perquisites to monetary compensation in that year.

Greed is a key reason for problems with perquisites. Perquisites are expensive and have some adverse effect on the firm’s bottom line. Managers who are more concerned about their own self-interest than their firm’s interest will make decisions in such a way as to justify specific perquisites for themselves. During times of austerity, for example, it is quite logical for a firm to cease operating corporate jets. Even in the face of extreme financial crisis, however, Enron executives routinely flew corporate jets—clear evidence of perquisite greed causing problems.

Bibliography:

Bureau of National Affairs, Executive Compensation: Disclosing Perquisites Under the New Proxy Disclosure Rules (Bureau of National Affairs, 2007);
Robert Halperin and Joseph Tzur, “Monetary Compensation and Nontaxable Employee Benefits: An Analytical Perspective,” The Accounting Review (v.60/4, 1985);
Jeffrey L. Kerr, “Diversification Strategies and Managerial Rewards: An Empirical Study,” The Academy of Management Journal (v.28/1, 1985);
Kathleen T. McGahran, “SEC Disclosure Regulation and Management Perquisites,” The Accounting Review (v.63/1, 1988);
David Yermack, “Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior Shareholder Returns,” Journal of Financial Economics (v.80/1, 2006).

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