Growing areas of United States shareholder scrutiny related to employment and compensation matters

Back to Employment and Industrial Relations Law Committee publications

Erica Schohn
Skadden, Arps, Slate, Meagher & Flom, New York

Michael Bergmann
Skadden, Arps, Slate, Meagher & Flom, Washington, DC

Kristin Davis
Skadden, Arps, Slate, Meagher & Flom, Palo Alto


Executive perquisites: aeroplane use

In order to attract and retain executives, companies may provide perquisites, which are special programmes and benefits that are made available only to executives or senior employees. The decision as to whether to offer perquisites to executives is based on a number of factors, including the practices of competitors and whether proxy advisory firms have raised related concerns in the past, for example, on pay vote recommendations. Where a company provides no perquisites, it typically highlights that fact in its annual proxy.

Perquisites provided to a company’s named executive officers may need to be specifically disclosed, depending on their value. Certain of these amounts, and in particular the value of company aircraft usage, are subject to complex calculation rules (and are typically reported at values that differ from their imputed value for taxation purposes).

The percentage of companies offering perquisites to their executives has decreased in the past decade (since the proxy disclosure rules requiring disclosure of perquisites were implemented). Although the extent and number of perquisites at companies that do offer such programs has narrowed, many companies offer at least some perquisites.[1] The perquisites that have become less common are those that can be perceived externally in a negative light, such as country club memberships or the use of company aircraft for personal reasons. However, tax and financial planning are among the perquisites most frequently retained.

Given the increased attention from the Securities and Exchange Commission (SEC) and the public press more generally, it is not surprising that perquisites have become an important issue for shareholders as well. Providing executives with the use of the company aircraft for personal reasons, the value of which could be over a million dollars, is particularly controversial and viewed negatively as it signals exclusivity and inequality.[2] Indeed, activist shareholders have begun drawing attention to the use of company aeroplanes by executives, often through direct contact with the company, calling into question the company’s aeroplane use policies or practices.[3] While perquisites such as financial and tax planning assistance rarely receive comments from proxy advisory firms, other perquisites related to personal aeroplane use by company executives or tax gross-ups may draw a negative comment or negative vote recommendation from proxy advisory firms. This is more likely if there are several such practices and if they are coupled with other pay practices that are, in the view of the firms, problematic. Activist shareholders have been particularly critical of such aeroplane use where a company’s overall financial performance is not meeting expectations.

In light of this growing attention on the use of company aircraft by executives, companies should review their existing policies and practices and determine whether the extent of such use is appropriate for the company’s specific circumstances. Companies and their applicable board committees should also look closely at their perquisite-related disclosures to ensure accuracy and compliance with the disclosure rules.

Gender pay gap and workplace equity issues

In the fourth quarter of 2019, full-time female employees’ median weekly earnings were only 82.5 per cent of the median for men.[4] Although more than 20 per cent of incoming chief executives at 1,183 companies were women in 2018, only five per cent of Chief Executive Officers overall in Standard & Poor’s (S&P’s) top 500 companies were women, with 12 per cent of CEOs, Chief Financial Officers or other top-paid executives in S&P’s top 500 companies being women.[5]

Human capital management, including pay and workplace equity, has also become an area of significant focus for investors, with a number of institutional investors engaging with companies on the issue. There is a growing call for companies to perform equal pay audits of their workforces, to publicly commit to workplace equality and to provide increased disclosure evidencing to investors of the extent to which the company’s stated commitments are being achieved. Indeed, as of October 2019, approximately 100 investors (representing US$1.73tn) in assets under management had signed an investor statement, urging companies to provide enhanced disclosure to investors regarding workplace equity policies and practices relating to workforce composition. These policies and practices included: recruitment, retention, pay, promotion and workplace safety, along with the resulting outcomes of such practices and policies. These investors are increasingly focused on equal access to higher paying positions within the company (commonly referred to as the ‘pay gap’) as opposed to strictly equal pay for the same position.

In addition to such investor scrutiny, all US states (other than Mississippi and North Carolina) have enacted pay equity laws, or at least have provisions in a general employment discrimination law prohibiting wage discrimination based on sex as of January 2020. These state pay equity laws are typically more employee-friendly than the federal Equal Pay Act. For example, California, New York, New Jersey and Massachusetts provide for longer statutes of limitation, different standards for equity and higher burdens for employers. The California Equal Pay Act, amended effective 1 January 2016 and 1 January 2018, requires equal pay for employees of the opposite sex who perform ‘substantially similar work’, which is viewed as a ‘composite of skill, effort and responsibility and performed under similar working conditions.’[6] The New York Achieve Pay Equity Act, amended effective 8 October 2019, requires employers to pay employees with status within a protected class or classes no less than employees without such status in the same establishment for ‘equal work’, which requires ‘equal skill, effort and responsibility’ and is ‘performed under similar working conditions’ or for ‘substantially similar work.’[7]

A growing number of states also have enacted laws banning employers from asking job applicants about their compensation history, some of which are applicable to both public and private employers and others of which are solely applicable to public employers or certain groups of employers.[8] Salary history bans are designed to break the cycle of wage discrimination. In addition, pay transparency laws that prohibit employers from retaliating against their employees for disclosing or discussing their, or their co-workers’ pay, help women become aware of the existence of a gender pay gap they may not have otherwise been aware of.

In light of this increased focus on pay equity issues, compensation committee members are advised to discuss the issue of gender pay equity proactively, ideally before a company is targeted by a shareholder activist. Companies may also want to consider disclosing policies and programmes that support gender equity and related efforts in respect of recruiting, employee development and elimination of unconscious bias. Indeed, a number of companies have begun including voluntary disclosure, describing the company’s commitment to, and programmes on topics related to, human capital management generally. This includes creating a diverse and inclusive work environment and overseeing matters relating to culture, employee engagement and talent development.

In August 2018, the SEC proposed new disclosure requirements under Item 101 of Regulation S-K, which would replace the current requirement that companies disclose their number of employees with a new mandate. This would require companies to describe their human capital resources, to the extent such disclosures would be material to an understanding of the company’s business. This includes ‘any human capital measures or objectives that management focuses on in managing the business (such as, depending on the nature of the [company’s] business and workforce, measures or objectives that address the attraction, development and retention of personnel).’ The SEC’s final rule (if any) may differ significantly from the proposed rule and the timeline for the SEC to issue a final rule is not yet known.

Impact of #MeToo movement

In 2017, stories of high profile individuals across a wide variety of industries alleged to have engaged in sexual harassment and misconduct broke in an unprecedented number and at an unprecedented rate. Among such stories were millions of recounts of workplace sexual harassment and abuse. According to a poll conducted by NBC and the Wall Street Journal in 2017, nearly half of then-employed women in the US had experienced an unwelcome sexual advance or verbal or physical harassment at work.[9]

The #MeToo movement brought renewed focus to the gender-based policies and practices of companies. Recent corporate #MeToo incidents indicate that allegations of sexual misconduct at public companies adversely affect both a company’s share price and a company’s reputation.[10] Given the current sociopolitical climate, compensation committees of boards have also started to take an increasingly active role in preventing and responding decisively to sexual misconduct in the workplace. This includes updating company policies and procedures relating to sexual misconduct, and becoming more involved in situations where an executive faces allegations of misconduct. Additionally, some companies have amended their compensation committee charters to give the committee authority to oversee these issues relating to sexual misconduct.

It is advisable for a company's board of directors or a compensation committee of the board to work with the company’s management to periodically review and update that company’s policies on sexual misconduct. Training and reporting procedures related to such conduct, as well as the committee’s role in overseeing allegations of sexual misconduct, should be included in this review.

The #MeToo movement has also impacted executive compensation practices. Companies are increasingly considering whether to include specific terms in their executive compensation plans and agreements. Some companies are even considering broad-based employee benefit plans, to address the consequences of sexual misconduct in the workplace and to deter such behaviour. For example, some companies have revised their definitions of ‘cause’ to include sexual misconduct, expressly permitting the company to terminate an individual’s employment for cause, and potentially limit a specified benefit if the individual is determined to have engaged in sexual misconduct. Some companies have also been asking newly-hired executives to make affirmative representations or warranties that they have not been subject to any sexual misconduct claims or otherwise engaged in such behaviour. Finally, some companies have contemplated updating their compensation recovery policies to provide for clawback of compensation if an executive is determined to have engaged in sexual misconduct in the workplace.

While some companies have been proactive in channelling the #MeToo movement’s momentum by updating their executive compensation practices, the extent to which the #MeToo movement will have a longer-term impact on executive compensation practices remains to be seen.

ESG considerations

Environmental Social and Governance (ESG)-related considerations represent another area of focus that has attracted increased attention from customers, investors and employees. ESG factors cover a wide range of issues, including measures of company carbon emissions, labour and human rights policies and corporate governance structures. Many large investors are increasingly interested in assessing the long-term investment risks and benefits associated with ESG matters. Indeed, some large investors have published proxy voting and engagement guidelines relating to ESG issues.

In recognition of the growing attention on ESG factors, some companies have started tying executive incentive compensation performance metrics to ESG factors. Compensation committee members should consider whether such ESG-related metrics are appropriate for a company’s incentive programmes and, regardless of the decision regarding incentive programmes, whether it is appropriate to proactively disclose ESG topics in the company’s public filings.


Executive perquisites, #MeToo movement, gender pay gap and ESG considerations are some of the latest contentious topics in the area of compensation of US executives. As shareholders have become more wary of company practices that do not conform to changing social norms, companies are responding by modifying and improving their employment and compensation practices. To cope with continued shareholder and SEC scrutiny, companies should closely monitor such trends.


[1] The Ayco Company, LP, Compensation & Benefits Digest (2019), 27(6) see: www.ayco.com/content/dam/ayco/pdfs/us/en/compensation-benefits-digest/2019/digest_1906.pdf?sa=n&rd=n.

[2] David Crow, Robin Kwong, Caroline Nevitt and Jennifer Bissell, ‘Executive perks: The corporate jet files’ Financial Times (7 March 2016), see https://ig.ft.com/sites/business-jets/.

[3] Mark Hollmer, ‘Argo Shareholder Details Allegations of Excessive Corporate Jet Use’ Carrier Management (25 April 2019), see www.carriermanagement.com/news/2019/04/25/192572.html; Ronald Orol, ‘Private Jets Draw Insurgent Attention’ The Deal, 22 November 2019, see www.thedeal.com/activism/private-jets-draw-insurgent-attention/.

[4] US Bureau of Labour Statistics, ‘Median weekly earnings of full-time workers increased 4.0 per cent in 2019’ (24 January 2020), see: www.bls.gov/opub/ted/2020/median-weekly-earnings-of-full-time-workers-increased-4-point-0-percent-in-2019.htm,

[5] Martha C White, ‘Female CEOs gained ground in 2018 but still trail their male peers’ NBC News (25 January 2019), see: www.nbcnews.com/business/business-news/female-ceos-gained-ground-2018-still-trail-their-male-peers-n962641.

[6] Cal. Lab. Code § 1197.5(a).

[7] NY Lab. Law § 194.

[8] Cal. Lab. Code § 432.3; N.Y. Lab. Law § 194-A.

[9] Carrie Dann, ‘NBC/WSJ Poll: Nearly Half of Working Women Say They’ve Experienced Harassment’ NBC News (30 October 2017), see: www.nbcnews.com/politics/first-read/nbc-wsj-poll-nearly-half-working-women-say-they-ve-n815376.

[10] Samantha Cooney, ‘Companies Are Losing Millions After #MeToo Allegations Like Kate Upton’s Claim Against Guess’ Paul Marciano’, TIME (2 February 2018), see https://time.com/5130340/kate-upton-guess-stock-price/.


Back to Employment and Industrial Relations Law Committee publications