Executive ‘perks’ never reported: Firm fined $1.25 million by the SEC

Paying six-figure salaries to relatives of the owners or top executives of a company is never a good look. For a publicly traded company, failing to report this kind of questionable compensation will attract the attention of the feds.

Popular footwear retailer Skechers is proof of that. The company is paying a $1.25 million penalty to the Securities and Exchange Commission (SEC) for “failing to disclose payments for the benefit of its executives and their immediate family members.” The California-based shoe company settled rather than go to court. The SEC charged Skechers with reporting and proxy solicitation violations of the Securities Exchange Act of 1934.

From 2019 through 2022, Skechers didn’t disclose that it had:

• employed the in-law of an executive officer at a salary of $213K for a non-exec position
• paid a different sibling-in-law of an exec $155K in salary, and
• shelled out just under $487K in compensation to yet another sibling of a different exec.

Plus: Over multiple years, two execs owed more than $120K to the company but didn’t reimburse Skechers. The loans were never reported to the SEC. By settling the charges, Skechers waives its rights to discuss the case publicly.

‘Clawback’ rules give the SEC more leverage

Companies pay bonuses or other types of compensation like cash or stock options in error. Often times these payouts are honest mistakes. Other times, not so much (we’ll leave it at that). Regardless of intent, companies are required under federal law to report these mistakes and seek to recover the money paid out in error.

The SEC’s Listing Standards for Recovery of Erroneously Awarded Compensation, more commonly known as the clawback rules, makes recovery of a mistakenly awarded bonus or other compensation necessary in most cases. In addition to the clawback rules, companies must also disclose executive compensation and company earnings under the SEC’s Pay Versus Performance Disclosure rules which were finalized in 2022.