Facebook through Fenwick & West LLP, responded to the comments of the Staff of the Securities and Exchange Commission (SEC) regarding the cost of the overall security program for Mark Zuckerberg.
The SEC Staff specifically commented on the Definitive Proxy Statement on Schedule 14A, which was submitted by Facebook on April 24, 2015.
The social network giant disclosed that it paid for the initial procurement, installation, and maintenance of security measures for Zuckerberg’s personal residences. Facebook also revealed that it is paying for the annual costs of security personnel.
The SEC Staff asked Facebook if the total incremental amount paid related to the security program for Zuckerberg was included as “All Other Compensation” for him. If not, the Staff ordered the company to explain how it came to a conclusion that it is not required to disclose such amounts in accordance with Item 402(c)(2)(ix)(A) of Regulation S-K and Instruction 4 to Item 402(c)(2)(ix).
According to the Staff, “security provided at a personal residence or during personal travel” is an example of item requiring disclosures as a perquisite or personal benefit under Item 402.
Facebook’s explanation on security program for Zuckerberg
According to Facebook, its overall security program for Zuckerberg was not included as “All Other Compensation” in the summary compensation.
The social network giant explained that the costs related to overall security program for Zuckerberg at his personal residence and during travels were “integrally and directly related to his performance of duties” as CEO of the company.
Facebook believed that the costs of its overall security program for its CEO were not considered perquisites and other personal benefits under SEC rules.
The social network giant noted that the SEC Release No. 33-8732A (2006 Release) sets two prongs that should be considered by companies in determining whether an item is a perquisite or other personal benefit that needs to disclose as “All Other Compensation.”
The two prongs included: 1) whether an item is integrally and directly related to the performance of an executive’s duties 2) whether an item confers a direct or indirect benefit that has a personal aspect, without regard to whether it may be provided for business reasons or for the convenience of the company, and is not generally available on a non-discriminatory basis to all employees.
Facebook says Zuckerberg is subject to threats as CEO
Facebook acknowledges the guidance set by the SEC in the 2006 Release in connection with the security provided at a persona residence or during travels.
However, the social network giant emphasized its belief that the example provided “does not preclude a determination that security accommodations are integrally and directly related to the performance of an executive’s duties in situations involving extraordinary circumstances where the executive is the subject of specific threats to his or her safety as a direct result of his or her capacity as an executive of the company.”
Facebook pointed out that the security provided for Zuckerberg is not just for his convenience but to address the extraordinary nature of his situation.
Facebook noted that before the 2006 Release, the SEC stated in [Disclosure of Management Remuneration, Commission Release No. 5904 (1978)] that “the taking of various security measures for the protection of executives may not results in any remuneration” if the life of the person is threatened because of his role in the company or if the company reasonably believes that the individual safety is in jeopardy.”
Facebook Board evaluates security program for Zuckerberg annually
According to Facebook, the Compensation Committee of the Board of Directors of the company carefully considered the nature of the relationship between Zuckerberg’s security and the performance of his duties when determining the costs of the overall security program for him.
The Compensation Committee is evaluating the overall security program annually to provide appropriate oversight and to determine how to treat the factors of the program for Facebook’s reporting obligations to the SEC and for tax purposes.
The executive protection team of Facebook prepares a comprehensive assessment of threats to Zuckerberg’s safety and recommendations for the overall security program.
According to Facebook, the threats to Zuckerberg are frequent, significant, and numerous, which are a direct result of his role as the founder, CEO, and controlling stockholder of the company.
The social network giant believes that any malicious and negative sentiment about Facebook is directly associated with and often transferred to him.
