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News Items, by Subject

Executive benefits


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[Guidance Overview] IRS Releases Interim Guidance on New Excise Tax on Executive Comp Paid by Tax-Exempt Organizations
"What is an 'applicable tax-exempt organization'? ... Who is the 'employer'? ... What is a 'related organization'? ... Who is a 'covered employee'? ... What is the applicable 'taxable year'? ... What is 'remuneration'? ... Who is a licensed medical or veterinary professional and how do you determine what amounts are paid for 'medical and veterinary services'? ... What are 'excess parachute payments'?" (Proskauer)
2019 Deadlines Approach to Furnish Incentive Stock Option and Employee Stock Purchase Plan Information Statements and Returns
"In addition to the employee information statements, corporations must file returns with the [IRS] on Forms 3921 and 3922 no later than February 28, 2019, if filed on paper, or April 1, 2019, if filed electronically. These information returns, Form 3921 for ISO exercises and Form 3922 for initial ESPP share transfers, must be filed electronically by any corporation required to file 250 or more of a particular return and may otherwise be filed either electronically or in paper form." (DLA Piper)
[Guidance Overview] What You Need to Know About the New Tax on 'Excess' Nonprofit Compensation
"[1] Compensation that is 'reasonable' under other federal tax rules can still be taxed as 'excess' compensation.... [2] To know whether it might pay compensation that triggers the tax, a nonprofit ... must keep track of its 'related' entities and any compensation paid by those entities to shared employees.... [3] 'Remuneration' counts once there is no substantial risk of forfeiture.... [4] Each common-law employer, whether it is the nonprofit or a related entity, must pay its share of the tax based on its proportional share of remuneration paid to a covered employee." (Caplin & Drysdale)
[Guidance Overview] Reminder: Employers Must Report 2018 ISO and ESPP Transactions
"Corporations that offer incentive stock options (ISOs) or maintain a tax-qualified employee stock purchase plan (ESPP) have an obligation to file returns with the IRS and to deliver information statements to employees and former employees regarding the acquisition of shares under such arrangements.... These forms are due regardless of any partial shutdown of the Federal government." (Latham & Watkins)
[Guidance Overview] IRS Provides Interim Guidance Regarding the New Excess Compensation Excise Tax Applicable to Tax-Exempt Organizations
"[T]he IRS narrowly construed many of the statutory provisions, which ultimately will result in additional administrative burden and cost to tax-exempt organizations subject to the rules. In particular, large, multiple-entity tax-exempt organizations (e.g., hospital or university systems) will need to be careful in determining which employees are subject to the excise tax, how much compensation is paid to each such employee, and which employers throughout the system will be liable for the tax." (Seyfarth Shaw LLP)
[Guidance Overview] IRS Issues Interim Guidance on the New Excise Tax on Executive Compensation for Tax-Exempt Employers
"If the tax applies, who pays it? ... Which tax-exempt employers are affected? ... Who is a covered employee? ... What types of payments trigger the excise tax? ... What is a 'taxable year' for purposes of the tax? ... How do you report and pay the excise tax? ... Is there room for interpretation as to how code section 4960 applies?" (Drinker Biddle)
Revising 162(m) Disclosures in Proxy Statements
"The Section 162(m) deduction limit for performance-based compensation was repealed by the Tax Cuts and Jobs Act, effective for taxable years beginning after December 31, 2017, subject to transition relief. Public companies should consider revising disclosures in their upcoming proxy statements. Recently filed proxy statements may provide some ideas, a sample of which is noted [in this article]. The disclosures seem to range from 'compensation in excess of $1,000,000 will no longer be tax deductible, get used to it' to 'it may not be deductible, but we still intend to tie pay to performance.' " (Dodd-Frank.com)
[Opinion] Shareholder Letter May Prompt More Descriptive CEO Pay Ratio Disclosures
"[A] shareholder letter ... that was sent to Fortune 500 company compensation committees from a group of 48 institutional investors ... requests far more information than needed to provide shareholders insights on these issues, many of which may give employee advocates and unions more information to leverage in negotiations or provide competitors with critical proprietary business information. In many cases it would greatly increase the amount of information collected and the burden on internal systems." (Willis Towers Watson)
[Guidance Overview] Hedging Disclosure Is Here: SEC Adopts Final Rules
"The final rules ... require public companies to disclose their hedging practices and policies (whether or not written) for employees, officers and directors in proxy and information statements relating to the election of directors. This leaves only three sets of executive compensation-related rulemaking under the DFA that have not been finalized, related to performance-based compensation disclosures, clawback policies and excessive compensation at certain financial institutions." (K&L Gates)
[Guidance Overview] SEC Adopts Hedging Policy Disclosure Requirements
"Companies will be able to satisfy the new rules either by disclosing the practices or policies in full or by providing a fair and accurate description of their hedging practices or policies, including the categories of people affected and types of hedging transactions specifically allowed or not allowed. If a company does not have hedging policies, it will be required to state that fact or to state that hedging transactions generally are permitted." (Skadden)
[Guidance Overview] Details on the SEC's Final Rules on Hedging Policies
"The SEC resisted all requests to provide a definition of hedging, instead placing that burden entirely on the company ... However, the rules make it very clear that the SEC intends the disclosure requirement to apply very broadly.... There is less risk of misleading investors if the policy is disclosed word-for-word." (Winston & Strawn LLP)
ISS Updates U.S. Compensation and Equity Compensation Plan Policies for 2019
"Equity plan amendments that involve removal of general references to Section 162(m) qualification (including references to approved metrics for use in performance plan-based awards) will be viewed as administrative and neutral. However, the removal of individual award limits in an equity plan will be viewed as a negative change, as ISS considers such limits to be consistent with good governance practices." (Benefits BCLP)
[Guidance Overview] IRS Issues Guidance on Excise Tax on Executive Compensation of Tax-Exempt Entities
"In determining the total remuneration paid, payments by the [applicable tax exempt organization (ATEO)] and all related entities are considered. Related entities can include for-profit organizations and governmental organizations. Related entities share common control. The IRS guidance specifically rejects the control group test for qualified plans that uses 80% and adopts a 50% test -- more than 50% ownership for stock corporations; partnerships; trusts, using beneficial interests -- and more than 50% of directors or trustees who are representatives of nonstock entities." (Nelson Mullins)
[Guidance Overview] IRS Issues Notice 2019-09 Providing Interim Guidance Under Code Section 4960
"Among other topics, the Notice addresses: [1] What year is used in calculating the excise tax? [2] Who is liable for the excise tax? [3] What is an [applicable tax-exempt organization (ATEO)]? [4] Who is a covered employee under Section 4960? [5] What is an excess parachute payment under Section 4960? [6] How do you compute excess parachute payments under Section 4960? [7] How do ATEOs and related organizations report and pay the excise tax imposed under Section 4960? [8] What is the effective date of Section 4960?" (Thomson Reuters Practical Law)
[Guidance Overview] Top Takeaways for Tax-Exempts from IRS Guidance on Executive Compensation
"Multiple employers within a tax-exempt system can each be separately subject to the excise tax.... Employees earning significantly less than $1 million can be covered employees and covered employee status never ends.... The determination of who is a covered employee is complicated.... Multiple entities within a tax-exempt system may be liable for a portion of the excise tax.... The excise tax can apply to governmental entities.... The excise tax is determined based on the calendar year.... Payments made upon separation from service that are less than $1 million can be subject to the excise tax." (McDermott Will & Emery)
[Guidance Overview] SEC Adopts Final Hedging Policy Disclosure Rules
"The final rules require companies to disclose certain hedging policies or practices, but do not require companies to adopt any new hedging policies or to amend any existing hedging policies. Many companies had already adopted some form of hedging policy when the SEC published the proposed rules in 2015 ... and have been voluntarily disclosing their hedging policies as part of their corporate governance disclosure. SEC proxy rules ... have also required some hedging disclosure in the Compensation Disclosure and Analysis (CD&A) section." (Goodwin Procter)
[Guidance Overview] IRS Answers Questions on Tax-Exempt Executive Compensation
"[Notice 2019-09] appears to answer most of the outstanding section 4960 questions and uses familiar concepts from other related areas as often as possible.... [Applicable Tax Exempt Organization (ATEOs)] and their related entities will have to determine the related entities, choose a reasonable method for allocating compensation among the entities, and determine the appropriate remuneration for each calculation. Exempt organization professionals and compensation and benefits professionals will likely have to work together on some of the issues to address overlapping concepts." (RSM US)
[Official Guidance] Text of IRS Notice 2019-09: Interim Guidance Under Section 4960 -- Tax on Excess Tax-Exempt Organization Executive Compensation (PDF)
92 pages. "Until further guidance is issued, ... taxpayers may base their positions upon a good faith, reasonable interpretation of the statute ... The positions reflected in this notice constitute a good faith, reasonable interpretation of the statute.... [T]his preamble describes certain positions that the Treasury Department and the IRS have concluded are not consistent with a good faith, reasonable interpretation of the statutory language. The Treasury Department and the IRS intend to embody these positions as part of the forthcoming proposed regulations." (Internal Revenue Service [IRS])
Rewarding and Retaining Nonprofit Executives Through Incentive Plans: Practical and Legal Considerations
"[This article highlights] current trends as well as practical and legal considerations regarding the use of incentive plans ... [discusses] the prevalence and function of incentive plans, considerations for establishing and managing plans, applicable legal standards to keep in mind when establishing such plans, and key considerations regarding 457(f) plans (common vehicles for longer-term incentive awards).... [and addresses] two related topics that nonprofits often ask about: whether it is appropriate to incorporate financial metrics into incentive plans, and how the recent 2017 tax act's 21 percent excise tax on nonprofit compensation may affect incentive awards." (Bloomberg BNA)
[Guidance Overview] ISS Updates FAQs on U.S. Compensation Policies
"There are nine new or materially updated questions [including] ... [19] Will any of the quantitative pay-for-performance screens change in 2019? ... [42] How does ISS analyze 'front-loaded' awards intended to cover future years? ... [47] Which problematic practices are mostly likely to result in an adverse recommendation? ... [50] If a company becomes a 'smaller reporting company' under the SEC's revised definition, how will ISS assess reduction in compensation disclosure? ... [59] How would ISS view any compensation program changes made in light of the removal of 162(m) deductions?" (Dorsey)
[Guidance Overview] SEC Adopts Dodd-Frank Hedging Disclosure Rule (PDF)
"The SEC expressly declined to adopt a definition of the term 'hedge' because it believes that the term should be applied as a broad principle.... [T]he new disclosure requirement ... is intended to cover all transactions that establish downside price protection in a registrant's equity securities ... It applies to the hedging of any equity security issued by the registrant, by any parent or subsidiary of the registrant or by any subsidiary of any parent of the registrant." (Mayer Brown)
ISS Releases Updates to U.S. Equity Compensation Plans FAQs
"These updates cover: [1] How the changes to Internal Revenue Code Section 162(m) under the Tax Cuts and Jobs Act of 2017 (TCJA) will affect ISS's evaluation of Section 162(m)-related proposals.... [2] The factors considered in ISS Equity Plan Scorecard evaluations. [3] How excessive dilution will impact ISS recommendations on equity plan proposals. [4] Burn rate benchmarks." (Thomson Reuters Practical Law)
[Guidance Overview] SEC Adopts Final Rules for Disclosure of Hedging Policies
"The final rules provide the following illustrative list of hedging transactions: prepaid variable forward contracts, equity swaps, collars and exchange funds. However, in the release to the final rule, the SEC notes that the term 'hedge' should be broadly applied to cover any financial transactions that are designed to hedge or offset any decrease in market value of the company's equity securities." (Meridian Compensation Partners, LLC)
[Guidance Overview] SEC Adopts Final Hedging Disclosure Rules
"The required disclosure must either provide a fair and accurate summary of the practices or policies that apply (including the categories of persons covered and any categories of hedging transactions that are specifically permitted or specifically disallowed) or disclose the practices or policies in full. In addition, if the company does not have any such practices or policies regarding hedging, the company must disclose that fact or disclose that the company generally permits its employees, officers and directors to engage in hedging transactions." (Vorys)
[Guidance Overview] Year-End Guidance on New Income Inclusion Deferral for Private Company Options and RSUs
"On December 7th, the IRS issued Notice 2018-97 to provide initial guidance on the new private company income inclusion deferral regime enacted under Code Section 83(i) as part of the 2017 Tax Cuts and Jobs Act.... [T]he Notice serves as validation of the widely-held sense that the risks and complexities of the deferral regime outweigh any potential benefits -- particularly for employers." (Baker McKenzie)
[Guidance Overview] SEC Adopts Final Hedging Disclosure Rule
"The final rule requires a description of any practices or policies a public company has adopted regarding the ability of its employees (including officers) and directors to engage in certain hedging transactions.... [M]ost companies must include this disclosure in their proxy and information statements relating to the election of directors during fiscal years beginning on or after July 1, 2019." (Ropes & Gray LLP)
Institutional Investors and Advisors Pursue Expanded CEO Pay Ratio Disclosure
"A group of institutional investors and advisors, cumulatively representing $3.3 trillion in assets under management and advisement, recently sent a letter to every public company included in the S&P 500 index seeking expanded CEO pay ratio disclosures in proxy statements.... The group believes that supplemental disclosure will help investors put the pay ratio information in the context of the company's overall approach to human capital management." (Weil)
[Opinion] Willis Towers Watson Comment Letter to IRS on Grandfathered Compensation Under Section 162(m) (PDF)
"[Notice 2018-68] does not directly address non-account balance plans, including SERPs, leaving the application of the grandfathering rules of IRC Section 162(m) to these plans open to interpretation ... The IRS should permit participants to 'grow into' benefits, to the extent accrued as of November 2, 2017, even though services must continue to be rendered after November 2, 2017.... The IRS should clarify that employment agreements that provide explicit guarantees for SERP benefits in place on November 2, 2017, can supersede the terms of the SERP plan document itself ... The IRS should confirm that compensation increases under non-account balance plans that calculate benefits based on final average compensation will not be treated as unreasonable COLAs that would result in the loss of grandfathered status." (Willis Towers Watson)
A 2018 Checklist to Avoid Section 409A Retirement Plan Errors and Penalties
"409A NQDC plans are not covered by the [EPCRS] for qualified plans. However, the [IRS] has provided limited formal correction procedures. Quick identification and correction of 409A NQDC errors under these procedures can eliminate or reduce the expense and corrective burdens. A high level list to check plans before year-end 2018 follows." (Bloomberg BNA)
Long-Term Incentive Programs: Let's Push Things Forward
"To achieve long-term pay-for-performance, the goals need to be set at levels that require some stretch, yet do not disengage participants by being impossible to achieve.... [T]he use of relative total shareholder return (TSR) -- stock price appreciation plus dividends -- has been the majority LTI performance measure of choice for the past few years.... [C]oupling an absolute company financial goal, such as earnings growth or return on invested capital, with a relative TSR measure is becoming the norm." (Meridian Compensation Partners, LLC)
[Guidance Overview] Text of SEC Fact Sheet on Final Rules for Disclosure of Hedging Policies
"The final rules implement Section 14(j) of the Securities Exchange Act of 1934, which was enacted by Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.... New Item 407(i) of Regulation S-K will require a company to describe any practices or policies it has adopted regarding the ability of its employees (including officers) or directors to purchase securities or other financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation, or held directly or indirectly by the employee or director.... Item 407(i) specifies that the equity securities for which disclosure is required are equity securities of the company, any parent of the company, any subsidiary of the company, or any subsidiary of any parent of the company.... Companies generally must comply with the new disclosure requirements in proxy and information statements for the election of directors during fiscal years beginning on or after July 1, 2019." (U.S. Securities and Exchange Commission [SEC])
Why CEO Pay Disclosures Can Be Misleading: The Example of Singapore
"Willis Towers Watson analyzed pay disclosures among the largest 120 listed companies in Singapore over the past five years. This article shares some of the common perceptions regarding CEO pay in Singapore (and often elsewhere) and presents analyses to corroborate or dispel the perceptions[.]" (Willis Towers Watson)
[Guidance Overview] SEC Adopts Final Rules on Hedging Policies (Dodd-Frank Section Act 955)
"The rules add a new Item 407(i) to Regulation S-K that will require a company to describe any practices or policies it has adopted regarding the ability of its employees (including officers) or directors to purchase securities or other financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation, or held directly or indirectly by the employee or director." (Winston & Strawn LLP)
[Guidance Overview] Private Company Grants of Stock Options and RSUs: IRS Guidance Provides Limited Support
"In Notice 2018-97, the IRS finally issued guidance for companies on qualified equity grants, with more to come, but it may do little to enhance the appeal of these grants for smaller startups.... [T]he IRS clarifies and creates rules in three areas that are evidently the most pressing for companies. [1] Time requirement for the 80% rule.... [2] Tax withholding.... [3] Companies can designate grants that are ineligible for the employee deferral election." (myStockOptions.com)
[Guidance Overview] IRS Requires Escrow Arrangement to Collect Income Withholding Taxes on Stock Deferral Elections (PDF)
"The IRS recently issued Notice 2018-97, which provides guidance regarding a number of the operational requirements applicable to Section 83(i). A large portion of the Notice 2018-97 guidance addresses the withholding of income taxes with respect to Section 83(i) elections." (Blank Rome LLP)
[Guidance Overview] Code Section 83(i): Initial Questions Answered by IRS But More Guidance Needed
"[Notice 2018-97] does not address the uncertainty around the timing of the withholding obligation prior to the Section 83(i) election. In general, employers must collect and remit tax withholding within a few days of the exercise or settlement. However, it is uncertain if the income tax withholding will be due at that time pending the 30 day window for employees to make an 83(i) election." (Kilpatrick Townsend)
[Guidance Overview] To Be or Not to Be ... Subject to the New Section 83(i) Deferral Process
"[C]ompanies will be able to opt out of Section 83(i) by not allowing employees to make the deferral election.... For companies that do want to allow their employees the option to make the deferral under Section 83(i), [Notice 2018-97] gave further details on the law's requirement that grants of RSUs or stock options must be made to not less than 80 percent of a corporation's employees in the U.S. per calendar year. It also clarified how employers must withhold taxes from the deferred income." (Holland & Hart LLP)
[Guidance Overview] Initial IRS Guidance for Section 83(i) Provides Mostly Good News
"[Notice 2018‑97] clarifies that the 80% test cannot be satisfied based on a single-date snapshot of the employer's US workforce.... [E]mployers are on the hook to pay the required income tax withholding even if the employer cannot obtain the funds from an employee or former employee.... Because escrow of deferral stock is now mandatory, ... employers can prevent awards from being qualified equity grants by not entering into an escrow arrangement with the grantee." (Trucker Huss)
IRS Guidance on Private Company Grants of Stock Options and RSUs Provides Limited Support
"To make qualified equity grants, the company must issue grants to at least 80% of employees in a single calendar year. The law does not provide for a cumulative basis that considers grants from prior years.... This makes it more difficult for early-stage startups, as they primarily make new-hire grants, not annual grants that can more easily fit into a calendar year." (Bruce Brumberg, in Forbes)
[Guidance Overview] New Excise Taxes on Tax-Exempt Organizations
"Tax-exempt organizations should determine whether they are an applicable tax-exempt organization within the meaning of Code Section 4960 and, if so, identify their covered employees who are making more than one million dollars a year or who may be entitled to receive parachute payments following termination of employment.... [It] will be particularly important for these tax-exempt organizations to ensure they have taken appropriate steps to create a rebuttable presumption of reasonableness with respect to officer compensation." (Ice Miller LLP)
2019 Compensation Committee Handbook (PDF)
112 pages. "[This Handbook] is intended to help compensation committee members understand and comply with the duties imposed upon them.... [It describes] in some detail the concepts underlying a variety of areas within the bailiwick of compensation committees (for instance, the types of equity awards that are commonly granted and their respective tax treatment) and [provides a] perspective on some of the many decisions that compensation committees must make (for instance, the pros and cons of hiring a compensation consultant and the factors that go into that hiring decision)." (Skadden)
Initial Guidance Issued on Section 83(i) Deferral Election for Private Company Equity Grants
"The IRS believes that the statutory language requires employers to meet the 80% requirement in the calendar year in which the stock options or RSUs are issued, finding that the interpretation that options issued in previous years can be counted on a cumulative basis with options granted in the current calendar year to be contrary to the statutory language and not a reasonable good-faith interpretation of the 80% requirement." (Journal of Accountancy)
[Guidance Overview] IRS Provides Initial Guidance For Private Corporations and Their Employees on New Tax Benefit for Stock Options and Restricted Stock Units
"The [IRS] today issued Notice 2018‑97 offering guidance on a recent tax law change that allows qualified employees of privately-held corporations to defer paying income tax, for up to five years, on the value of qualified stock options and restricted stock units (RSUs) granted to them by their employers." (Internal Revenue Service [IRS])
[Official Guidance] Text of IRS Notice 2018-97: Application of Section 83(i) to Stock Options and Restricted Stock Units (PDF)
19 pages. "[This notice provides initial guidance on certain aspects of section 83(i), as enacted by the Tax Cut and Jobs act, specifically:] [1] the application of the requirement in section 83(i)(2)(C)(i)(II) that grants be made to not less than 80% of all employees who provide services to the corporation in the United States, [2] the application of federal income tax withholding to the deferred income related to the qualified stock, and [3] the ability of an employer to opt out of permitting employees to elect the deferred tax treatment even if the requirements under section 83(i) are otherwise met." (Internal Revenue Service [IRS])
2018 End of Year Plan Sponsor 'To Do' List, Part 4: Executive Comp
"Last chance to correct certain Section 409A document failures discovered in 2018 ... Nonqualified deferred compensation deferral elections should be made on or before December 31, 2018 ... Address impact of Tax Cuts and Jobs Act on Section 162(m) ... Review whether your equity-based compensation plan has sufficient shares remaining for 2019 awards ... Review Director pay practices and consider separate annual limits on Director equity awards ... Section 6039 information statements due by January 31, 2019." (Snell & Wilmer)
Top Trends to Consider in Health Care Executive Pay
"[1] Health care consumerism ... [2] Continued industry consolidation ... [3] Increased public scrutiny on executive compensation ... [4] Shifting talent markets ... [5] High chief executive officer turnover ... [6] Executive talent shortages ... [7] Evolving compensation models." (Willis Towers Watson)
[Opinion] New Tool May Address Executives' Concentrated Stock Position Problems
"[R]equiring all executives to hold the majority of their wealth in a single asset may encourage executives to become risk averse in a manner that is contrary to the stockholders' interests.... StockShield establishes and maintains a 'Stock Protection Trust,' designed to limit the downside risk of company stock holdings while preserving their full upside potential.... [U]nlike selling the stock, this strategy is intended to create no downward pressure on the shares." (Winston & Strawn LLP)
[Guidance Overview] Hardship Regs Revisited: Communications and Nonqualified Plans
"The proposed hardship regulations were silent as to whether a nonqualified deferred compensation plan can continue to cancel deferral elections following a hardship withdrawal. Considering that effective January 1, 2019, suspensions following hardship withdrawals will no longer be required, plan sponsors with nonqualified plans may wish to review the suspension language in their nonqualified deferred compensation plans[.]" (Morgan Lewis)
Subjective Performance Goals After Elimination of the Performance-Based Compensation Exception
"A compensation committee that adopts or applies performance targets that are too subjective could lead to ... [1] Criticism from institutional investors and proxy advisory firms for the failure to adequately link incentive pay to performance.... [2] [U]ncertainty in the mind of executives' as to precisely what is required of them, which would reduce the incentive value of an award. [3] Failing to create a fixed grant date for equity-based awards under ASC 718. [4] Required reporting of annual incentive payments in the 'Bonus' column of the Summary Compensation Table, instead of the Non-equity incentive plan compensation column." (Winston & Strawn LLP)
Tax Reform Elevates Split Dollar Arrangements as Incentive Plan
"[T]he potential exists to use split dollar plans to mitigate the significant additional expense of the new 21 percent excise tax, making it even more favorable as a part of an executive compensation package. The remuneration subject to the new tax in Section 4960 includes deferred compensation benefits that are includible in income (some exceptions apply). Split dollar plans are considered loans pursuant to Section 7872 and, therefore, are not included in remuneration." (Fulcrum Partners LLC)
The Top-Hat Exemption After Sikora v. UPMC (PDF)
"[S]everal federal courts of appeals have addressed the disputed contention that the presence of employee bargaining power is required for a plan to fall under the top-hat exemption. In this article, [the authors] look at recent appeals court decisions and their effects on this exemption." (McDermott Will & Emery, via Benefits Law Journal)
ESG's Growing Role Poses a Challenge: How to Integrate It Into Executive Compensation Programs
"ESG is a broad concept that can be measured in numerous ways, and there is not one 'bottom-line' number that can be referenced ... In many cases, companies have included the most material measures as separate measures within the incentive arrangements ... The achievement of an organization's ESG priorities needs to be addressed in different ways through the organization, and there might not be clear line of sight between corporate progress and an executive's contribution to the organization's success." (Willis Towers Watson)
NYSE Opens Compensation Committee Exemptions to More Companies
"The SEC in June adopted amendments to the 'smaller reporting company' (SRC) definition to expand the number of companies that qualify for certain existing disclosure benefits.... SRCs can take advantage of certain exemptions from the exchange's compensation committee requirements. Specifically, they do not have to comply with: [1] Enhanced requirements with respect to the independence of compensation committee members; [2] Requirements regarding the analysis of the independence of any compensation consultant, legal counsel or other adviser to the compensation committee." (Corporate Secretary)
2018 Year End Checklist for Plan Administrators (PDF)
"[This] checklist addresses plan amendments, notices and other considerations for qualified retirement plans, welfare plans, and stock-based and performance-based plans. A chart showing benefit and contribution limits for 2019 is [included]." (Williams Mullen)
The Seven 'Deadly Sins' for Compensation Committee Agendas in 2019
"[1] Not re-evaluating your clawback policies.... [2] Focusing only on your organizational design of today.... [3] Thinking about director pay disclosure the same way.... [4] Doing a perfunctory review of the compensation committee charter.... [5] Ignoring the war for talent.... [6] Disregarding the elephant in the room -- the potential for a downturn.... [7] Failing to understand economic value added (EVA)." (Farient Advisors)
ISS Publishes Preliminary Compensation FAQs
"ISS announced a few changes to the Employee Plans Scorecard (EPSC). [1] [T]he change in control (CIC) vesting factor will be updated to provide points based on the quality of disclosure of CIC vesting provisions, rather than based on the actual vesting treatment of awards.... [2] ISS announced a new negative overriding factor relating to excessive dilution for the S&P 500 and Russell 3000 EPSC models.... [3] EVA measures will be phased-in basis over the 2019 proxy season. There will be no changes to the quantitative screens for the 2019 proxy season." (Winston & Strawn LLP)
New York's High Court Strikes Down 'Soft Cap' on Executive Compensation for Health Care Providers Receiving State Funds, Yet Upholds Limitations
"Last month, the New York State Court of Appeals invalidated a state Department of Health (DOH) regulation that restricted certain health care providers contracting with the state from paying executives more than $199,000 annually, regardless of whether the funds came from the state or not. However, the Court upheld two other DOH regulations; one that limits providers from using public tax-payer money directly to pay executives in excess of $199,000 annually, and another that limits the amount of public funds used for administrative costs." [LeadingAge New York, Inc. v. Shah, No. 93 (N.Y. Oct. 18, 2018)] (Epstein Becker Green)
Tax Reform Impacts Year-End Planning for Equity Comp
"Multi-year planning is always valuable with equity compensation, as you can control the timing of stock sales and option exercises, and you know when restricted stock/RSUs will vest. Employees with equity grants, employee stock purchase plans, and company shares should be aware of the 2018 and 2019 thresholds for higher tax rates on compensation income and capital gains, the additional Medicare tax on compensation income, and the Medicare surtax on investment income." (myStockOptions.com)
[Opinion] Comment Letter to IRS on Notice 2018-68 and Section 162(m)(3) Definition of Covered Employee (PDF)
"Notice 2018‑68 proposes a definition of 'covered employee' that contradicts the statutory text, as revised by the Tax Cut and Jobs Act (TCJA). Specifically, the Service disregards statutory language requiring that a 'covered employee' be an 'employee' -- i.e., an individual who is an employee at some point during the tax year.... As a result of this plain meaning, payments delayed until after the year in which a covered employee ceases to be an employee should not be subject to Section 162(m)'s deduction limit. These include the vast majority of non-qualified retirement plans, severance arrangements, and equity pay exercised after termination of employment." [Also available: Executive Summary.] (Ivins, Phillips & Barker)
2018 Study of Executive Severance Arrangements Not Related to a Change in Control
"In 2017, 65% of Study Group companies reported maintaining severance arrangements that provide cash severance benefits for [named executive officers (NEOs)], down slightly from 69% in 2014.... In 2017, 76% of companies determine the amount of cash severance based on a fixed multiple of 'pay,' down slightly from 83% in 2014.... For performance shares, 95% of companies determine the number of shares that vest based on actual performance, a significant increase from 2014 (81%)." (Meridian Compensation Partners, LLC)
 
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