162(m) - Objective Compensation Formula

[ERISA-Bubs]

We know that under 162(m) performance-based compensation is not subject to the $1 million deductibility limit. Two questions regarding the compensation formula.

The regs are clear that the comp committee may not retain discretion to determine the fraction each employee may receive from a bonus pool. (§ 1.162-27(e)(2)(vii)(Example 7)). However, the regs also provide that the performance goal can be established in the first 90 days of the performance period. Can a plan allow the comp committee to determine the percent each employee may receive, on a year-to-year basis, so long as the comp committee establishes the percentage inthe first 90 days of the performance period? (I think this is yes.)

Second, assuming the first answer is yes, will the plan need to be reapproved every 5 years? The regulations provide that if the comp committee has authority to change targets under the performance goal after shareholder approval, the plan must be reapproved in the 5th year following approval. Is authority to change allocation of the bonus pool the same as authoirty to change "targets"? (assume the comp committee has not discretion to change the performance goal, only the allocation of the pool).

Any help is greatly appreciated.