Perquisites Essay

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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: 

  1. Bureau of National Affairs, Executive Compensation: Disclosing  Perquisites Under  the  New  Proxy Disclosure Rules (Bureau of National  Affairs, 2007);
  2. Robert Halperin and Joseph Tzur,  “Monetary Compensation and  Nontaxable  Employee  Benefits: An  Analytical  Perspective,” The Accounting Review (v.60/4, 1985);
  3. Jeffrey L. Kerr, “Diversification Strategies and Managerial Rewards: An Empirical Study,” The Academy of Management  Journal (v.28/1, 1985);
  4. Kathleen T. McGahran, “SEC Disclosure Regulation and Management Perquisites,” The Accounting Review (v.63/1, 1988);
  5. 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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