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Stock options

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Stock Compensation: 2017 Assumption and Disclosure Study (PDF)
38 pages. "When valuing stock options, companies continue to rely heavily on the Black-Scholes option pricing model, with 82% of Large companies disclose relying solely on the use of that model in valuing their stock compensation awards.... [In] 2012 the number of stock options granted compared to the number of restricted stock awards was almost 1.4 to 1, while by 2016 it had dropped to about 1.2 to 1." (PricewaterhouseCoopers)
[Guidance Overview] Amendment to Maryland 'Blue Sky' Law Removes Filing Requirement for Many Private Employers Granting Equity Awards to Employees
"Effective October 1, 2017, Section 11-601(11) has been revised to provide for a self-executing exemption (no filing required) in connection with an investment contract or other security issued in connection with a benefit plan if no commission or other remuneration is paid in connection with the offering and [1] the plan is qualified under the Internal Revenue Code, [2] the plan complies with Rule 701, or [3] the security is effectively registered and sold under the Securities Act of 1933." (Baker McKenzie)
The Trump/GOP Tax Reform Framework: What It Means for Stock Compensation
"[T]he proposed changes that are likely to have an indirect impact on stock compensation include: simplification of individual income tax rates; elimination of the AMT; [and] elimination of the estate tax. Notably, the framework proposes to give Congress the prerogative to create a higher top income tax rate for the wealthiest individuals, in addition to the three tax rates presented. That would almost certainly apply to executives with stock compensation." (
T+2 Is Here: What It Means for Stock Compensation
"[In] a cashless exercise of stock options or in a stock sale at restricted stock/RSU vesting or after ESPP purchase, the cash will now show up in your brokerage account sooner, within two days after the execution date. Additionally, to settle by T+2, the broker must, sooner than previously, receive the shares and know the funds to send the company to cover the exercise cost and/or the tax withholding. Companies may also now need to give withheld taxes to the IRS sooner after NQSO exercise and restricted stock vesting." (
Do Performance Shares Actually Perform?
"In the sample plan [evaluated by two MIT professors], 50% of each grant ... is tied to TSR relative to 11 peers over a three-year period. Although the company's annualized TSR ranked 10th, the CEO still received 80% of the target payout. The authors opine that this is not truly 'pay for performance.' Instead, they reason, if the TSR ranks in the lower half of the peer group, the payout should be less than half." (
Accounting for Stock Compensation Under FASB ASC Topic 718 (PDF)
13 pages. "FASB ASC Topic 718 is in substantial convergence with the International Accounting Standard Board's final standard on Share-based Payment, except for transactions with nonemployees and nonpublic companies, and minor technical differences in regard to employee stock purchase plans, modifications, liabilities, and income tax effects. Topic 718 creates a more 'level playing field' for equity compensation design that has resulted in the increased prevalence of full-value and performance-vesting awards, and a corresponding decline in plain-vanilla, tax qualified, and reload stock options, and employee stock purchase plans." (FW Cook)
[Official Guidance] IRS Publication 1220: Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G for Tax Year 2017 (PDF)
150 pages, August 2017 revision date. Includes a "First Time Filers Quick Reference Guide" with information about Form 4419, Application for Filing Information Returns Electronically (FIRE), which is used to request authorization to file Forms 1097, 1098 Series, 1099 Series, 3921, 3922, 5498 Series, 8027, 8955-SSA, 1042-S, and W-2G electronically through the Filing Information Returns Electronically (FIRE) System. Excerpt: "Allow a 45-day processing timeframe prior to the earliest information return due date." (Internal Revenue Service [IRS])
ASU 2017-09 Provides Clarity to Modifications to Share-based Compensation Arrangements
"FASB issued Accounting Standards Update (ASU) 2017-09 to reduce the cost and complexity when applying Topic 718 and standardize the practice of applying Topic 718 to financial reporting. The ASU was not developed to fundamentally change the definition of a modification, but instead to provide guidance for what changes would qualify as a modification. This was done by better defining what does not constitute a modification." (Findley Davies | BPS&M)
How Long Should Former Employees Have to Exercise Stock Options?
"As Uber has recently discovered, having an exercise window that is too brief can leave former employees unable to purchase stock and disincentivize current employees.... Most start-ups provide around 90 days for ex-employees to exercise their options." (Butterfield Schechter LLP)
ACA Repeal and Replacement, Take Two: Impact on Stock Compensation
"The AHCA would eliminate the Net Investment Income Tax: a 3.8% Medicare surtax on investment income, including capital gains, dividends, and interest. Meanwhile, an amendment to the House bill would delay until 2023 the repeal of the Additional Medicare Tax (0.9%) on ordinary income ... Currently ... companies must withhold the 0.9% additional Medicare tax on any type of pay, including that from stock compensation ... when an employee's wages for the year are more than $200,000. While the legislation would remove that requirement, it would not do so until after 2022." (
Unexpected Risks of Early Exercise ISOs
"Companies that permit the grant of early exercise incentive stock options (ISOs) do so primarily to limit the impact of the alternative minimum tax (AMT). However, due to fairly counterintuitive tax regulations, structuring options in this fashion can expose optionees to negative tax consequences in the event of a disqualifying disposition. This [article] reviews the tax effects of early exercise ISOs and compares the tax results to alternate structures." (Dorsey & Whitney LLP)
Tax Season 2017: A Quick Take on What's New for Stock Comp
"In general, 2016 brought no major tax changes to consider.... However, developments over the past few years, such as changes in tax rates or amounts that are indexed yearly for inflation, continue to affect tax-return reporting.... The 2016 version of IRS Form 1099-B, which brokers issue for stock sales made during the tax year, closely resembles the version for the 2015 tax year. However, the 2014 version introduced some major changes that you should continue to keep in mind[.]" (
Tax Reporting for Stock Compensation: Understanding Form W-2, Form 3922, and Form 3921
"Making sense of Form W-2 when stock compensation is reported ... Form 3922 for ESPPs and Form 3921 for ISOs ... Sell shares in 2016? The fun is just beginning." (
Trends in Stock Compensation, ESPPs, and Participant Behavior
"Use of full-value awards continues to increase.... Use of stock options continues to decline.... Performance awards are for executives.... [Total shareholder return (TSR)] is the top metric for performance grants.... Dividend payments increase.... Payouts to retirees." (
[Guidance Overview] ISO and ESPP Reporting and Disclosure Requirements for Employers
"You must furnish an information statement on Form 3921 (ISO) or Form 3922 (ESPP), as applicable, to each employee (or former employee) by January 31, 2017; you must also file information returns with the [IRS] by February 28, 2017, if filing on paper, or March 31, 2017, if filing electronically.... A $50 penalty per return may apply for a filing that occurs on or before 30 days after the filing deadline, increasing to $100 if the filing occurs after 30 days but on or before August 1, 2017. Thereafter, a $260 penalty may be assessed for each delinquent filing, subject to a maximum penalty of $3,193,000 per year or $1,064,000 for small businesses." (Hanson Bridgett LLP)
[Guidance Overview] That's a FAQ, Jack! New Interpretations from ISS
"On December 19, 2016, ISS issued updates to several of its key FAQs, including those on Equity Compensation Plans, Executive Compensation Policies, and also the explanation of ISS' Pay-for-Performance Mechanics. [This article summarizes] the specific updates under each FAQ and the P4P Mechanics." (
[Guidance Overview] Annual Reporting Requirements for Incentive Stock Options and Employee Stock Purchase Plans
"Returns for ISO and ESPP transactions must be submitted to the IRS on Form 3921 (for ISOs) and Form 3922 (for ESPPs).... [E]ven though Forms 3921 and 3922 may be found on the IRS website, you are not permitted to print and file these forms with the IRS; the IRS will only accept the official forms ordered from the IRS." (Orrick)
Lawsuits and Court Cases of Interest That Involve Stock Compensation
"According to the complaint, Uber recruited software engineers with whom it had employment agreements to grant ISOs with a vesting schedule of 25% after the first 12 months and then monthly vesting thereafter. However, the company changed the provision to allow all of the shares to become exercisable after six months, forcing some ISOs to become NQSOs ... In [a separate case], the Connecticut Supreme Court confirmed that Connecticut can tax income from option exercises by a nonresident if the options were granted as compensation for performing services within the state." (
[Guidance Overview] 2017 Deadlines Approach to Furnish ISO and Employee Stock Purchase Plan Information Statements and Returns
"Section 6039 of the Internal Revenue Code requires a corporation to furnish a written statement to any employee or former employee who either [1] exercised an incentive stock option within the meaning of Section 422 of the Code (ISO) during 2016 or [2] during 2016 first transferred legal title to shares acquired under the corporation's employee stock purchase plan within the meaning of Section 423 of the Code (ESPP). This requirement applies to both privately held and publicly traded corporations. The corporation must furnish these statements on Forms 3921 and 3922 no later than January 31, 2017." (DLA Piper)
[Guidance Overview] SEC Issues C&DIs on CEO Pay Ratio Disclosure, Exempt Offerings under Rule 701 and Sales of Securities Under Rule 144(d)
"[A]ny measure that reasonably reflects the annual compensation of employees may serve as a compensation measure. Workers whose compensation is determined by a company should be included in the determination of the company's employee population regardless of whether such workers would be considered 'employees' for tax or employment law purposes.... The holding period under Rule 144(d) for restricted securities received by an employee pursuant to an individually negotiated employment agreement begins when the employee is deemed to have paid for such securities." (Dechert)
[Guidance Overview] Social Security Wage Base Hike In 2017 Affects Year-End Planning For Stock Options
"When you exercise nonqualified stock options or when restricted stock/RSUs vest, you owe Social Security tax up to this yearly income ceiling ... If your yearly income is already over that threshold, you can exercise nonqualified stock options or stock appreciation rights before the end of 2016 without paying Social Security tax, and therefore you can keep an extra 6.2% of the related income.... If you are already over the wage base for 2016 and expect to be eventually over the wage base for 2017, you can therefore save the $539.40 increase in Social Security tax simply by exercising stock options this year rather than in 2017." (
Wells Fargo Claws Back Millions from CEO After Scandal
"Wells Fargo & Co. Chairman and Chief Executive John Stumpf will forfeit $41 million for the bank's burgeoning sales scandal, marking one of the biggest rebukes to the head of a major U.S. financial institution. The bank's board moved to rescind pay for Mr. Stumpf and former community-banking head Carrie Tolstedt ahead of a hearing of the House Financial Services Committee ... The awards being forfeited by Mr. Stumpf represent about a quarter of the total compensation he has accrued over his nearly 35 years at the bank[.]" (The Wall Street Journal; subscription may be required)
Equity Compensation Trend: Extending the Time to Exercise Vested Stock Options
"Providing an extended period to exercise vested stock options is not a new idea. In the past, employers have considered this approach, typically on a case-by-case basis, if the employee was in good standing and unique circumstances were present upon termination or if the employee has some degree of leverage in negotiating his or her departure. What is new is the trending consideration to provide an extended post-termination exercise period to employee option holders generally." (DLA Piper)
[Guidance Overview] IRS Proposed Regs Update 409A Rules for Nonqualified Plans
"The IRS has made payment schedules more flexible, allows offers of stock rights to prospective employees and relaxes some administrative requirements. Accelerating a payment after a plan termination is permitted only if the employer terminates and liquidates all plans in the same category. The IRS is proposing to strengthen the proposed anti-abuse rule for income inclusion." (Willis Towers Watson)
CEO Compensation Decreased in 2015
"[Total direct] compensation for CEOs in the S&P 500 ... declined from a median of $10.6 million in 2014 to $10.3 million in 2015. This decrease -- the first in at least five years -- is primarily attributable to lower short-term incentives ... The past five years witnessed an inverse usage of long-term incentive vehicles as the prevalence of stock options among S&P 500 companies shrank to 57% in 2015 from 72% in 2011. Over the same period, performance share usage increased from 76% to 87% and time-vesting shares remained steady at 59%." (Mercer)
[Guidance Overview] Key Takeaways from the Newly Issued Proposed Section 409A Regs
"Exempt stock rights (stock options and stock appreciation rights) can be awarded to service providers who are expected to commence work for the service recipient within 12 months, if they actually do commence work within that period.... Liberal timing rules apply to payments triggered by the service provider's death.... 'Clawbacks' on exempt stock rights are permitted.... A payment can qualify as a 'short-term deferral' even if the payment is made after March 15 of the year following vesting, where the payment is prohibited by federal securities law restrictions." (Wilkins Finston Friedman Law Group LLP)
[Guidance Overview] Proposed Section 409A Regs Make Several Notable Changes
"Though the IRS emphasized that the proposed regulations make narrow, discrete clarifications and changes to the final and 2008 proposed regulations, ... changes to four areas ... are likely to have a greater impact on the design and operation of deferred compensation plans. [1] You can still 'fix' noncompliant arrangements the year before vesting.... [2] Changes to stock option/SAR Rules.... [3] Employee-Independent Contractor.... [4] Payment events triggered by beneficiaries." (Miller & Chevalier)
[Guidance Overview] Section 409A Proposed Regs: IRS Changes Affect Nonqualified Deferred Comp and Stock Plans
"[T]hese proposals formalize previously informal guidance that the IRS has been providing, offer new flexibility in some areas, and set forth a few new requirements. The IRS is allowing reliance on this guidance now and will not assert any position that runs counter to it. The proposed regulations present a lengthy list of items." (
[Guidance Overview] Proposed Section 409A Deferred Compensation Regs Offer Helpful Clarifications of Current Rules
"[T]he proposed regulations [1] limit the circumstances in which the amount payable may be less than fair market value, thus creating uncertainty as to whether the stock right exemption allows a below fair market value repurchase price in other circumstances.... [2] do not address whether the parties to a change in control transaction may convert an in-the-money stock right into the right to receive payment of the stock right's intrinsic value (sometimes referred to as the 'spread') in the form of cash installments as and when the stock right would have vested absent the transaction ... [3] do not address whether payment terms in a short-term deferral agreement must satisfy the 'applicable 2-1/2 month period' deadline at all times from the inception of the agreement[.]" (Latham & Watkins)
[Guidance Overview] IRS Proposes Updates to Sec. 409A Rules
"The proposal introduces a single rule, applicable for all purposes, that looks generally to when an event results in currently taxable income.... The proposed rules ... [allow] a payment at death to be paid at any time designated by the payor or payee up to and including December 31 of the calendar year following the calendar year in which death occurs.... A separate portion of the release adjusts 409A proposed regulations issued in late 2008 (but not yet finalized) that prescribe how to measure the income required to be taken into account in the case of noncompliance with 409A." (Ropes & Gray LLP)
Linkedin, Microsoft and 'Stock-Based Compensation'
"Silicon Valley Pre and Post-IPO companies used stock options almost exclusively until the last six or seven years.... LinkedIn was an early and enthusiastic member of the companies who moved to RSUs.... If LinkedIn had used exclusively stock options over the past 3 years, most of those options would have little or no readily ascertainable value in the Microsoft transaction. This would have been demotivational for LinkedIn staff and executives. It would have also been costly to Microsoft[.]" (Performensation)
Do CEO Stock Options Mean Trouble?
"The theory ... is that CEO pay should be aligned with the interest of company shareholders. But there's an active debate over whether stock options -- a very common part of CEO compensation packages -- are the best way to do that.... Dylan B. Minor offers evidence that stock options not only encourage CEOs to pursue bold innovation, but also to take dangerous risks." (HRE Daily)
Broad-Based Stock Grants and Employee Ownership Are Expanding
"[B]road-based grants of equity awards to all [employees] ... show that stock compensation and share ownership are not just for executives and directors but are also practical, commonsense ways in which companies can reward rank-and-file employees above and beyond salary and encourage a commitment to workplace excellence through a culture of employee ownership. From an economic perspective, corporate profit-sharing through stock options and restricted stock/RSUs has the potential to reduce income inequality by giving employees potentially substantial investment upside via the familiar, trustworthy channel of their own companies." (
Court Boots Executive's $21 Million ERISA Claim Under Stock Rights Plan
"In affirming a federal district court's decision, the U.S. Court of Appeals for the Ninth Circuit held ... that the Booz Allen stock rights plan wasn't covered by [ERISA] because it wasn't designed or intended to provide retirement or deferred income. With this ruling, the Ninth Circuit joins the Third, Fifth and Eighth circuits in holding that to qualify as an employee pension benefit plan subject to ERISA, 'the paramount consideration is whether the primary purpose of the plan is to provide deferred compensation or other retirement benefits.' " [Rich v. Shrader, et al., No. 14-55484 (9th Cir. May 24, 2016)] (Bloomberg BNA)
For Stock-Based Pay, HR Can Help with Next Year's Taxes
"Employees should be saving confirmation statements and any other substitute statements provided by their stock plan provider or employer.... Double-counting restricted stock income is one of the most common mistakes employees make today, simply because current Form 1099-Bs don't account for taxes potentially withheld already. Keeping track of additional documentation, such as previous confirmation statements, can help ensure employees don't pay taxes on amounts paid in the previous year." (Society for Human Resource Management [SHRM])
[Guidance Overview] FASB Issues Update for Stock-Based Compensation Accounting (PDF)
"[T]wo changes will be most beneficial to plan administration: [1] Tax withholding in shares will now be permitted up to the maximum applicable statutory tax rate (previously, withholding shares above the minimum statutory tax rate threatened liability accounting for equity awards); and [2] With respect to forfeitures, companies will be permitted to elect to either (a) account for forfeitures as they occur, or (b) estimate forfeitures and account for the equity awards that are expected to vest (which previously was the only option)." (ExeQuity)
Stock Options and Tax Returns: Mistakes To Avoid
"[1] With a cashless exercise/same-day sale, the spread is reported on your W-2 and on your tax return as ordinary income.... [2] With nonqualified stock options (NQSOs), for employees the spread at exercise is reported to the IRS on Form W-2 ... [3] You will also mistakenly double-report income if you do not realize that your W-2 income in Box 1 already includes stock compensation income.... [4] With incentive stock options (ISOs), when you exercise and hold through the calendar year of exercise, remember that you need to complete an AMT return (Form 6251) to see whether you owe AMT.... [5] When you have paid AMT because of your ISO exercise and hold, you get a tax credit." (
New FASB Accounting Rules: Share-Based Withholding on Equity Awards at the Maximum Federal Tax Rate Permitted
"One item of particular interest is a change in how federal income taxes can be 'netted' against the number of shares delivered upon exercise of a stock option, or upon vesting of restricted stock or settlement of restricted stock units. Under prior guidance, only the 'minimum required' tax withholding amount could be netted against the shares delivered. If this limit were exceeded, the grant would be considered a 'liability' award with coincident adverse accounting treatment." (Wilkins Finston Friedman Law Group LLP)
[Official Guidance] Text of FASB Update 2016-09: Stock Compensation (Topic 718) -- Improvements to Employee Share-Based Payment Accounting
127 pages. "The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities." (Financial Accounting Standards Board [FASB])
Tax Reporting for Stock Compensation: Understanding Form W-2, Form 3922, and Form 3921
"The vesting of restricted stock, the share delivery from restricted stock units (RSUs), and the vesting of performance shares all prompt W-2 reporting of the income received. The treatment on the W-2 is essentially the same for all three grant types.... If you exercised nonqualified stock options last year, the income you recognized at exercise will be reported on your W-2.... The W-2 reporting for ESPP income depends on whether your company's ESPP is tax-qualified or not and, if it is tax-qualified, how long you hold the shares.... If you sold shares from stock compensation or an ESPP last year, you will need guidance to report the sale proceeds on your tax return." (
[Guidance Overview] Annual ISO and ESPP Information and Reporting Requirements
"Participant statements may be provided on Form 3921 (for ISOs) and Form 3922 (for ESPPs) or may be provided using a different format that complies with the substitute form requirements found in IRS Publication 1179.... [C]ompanies with a limited number of transactions will likely use Forms 3921 and/or 3922 (as opposed to substitute statements) since these forms will need to be prepared and submitted to the IRS in any event.... [C]ompanies that provide Form 3921 and/or 3922 to participants (again, as opposed to providing substitute statements) will deliver the form(s) to their participants, along with a cover letter explaining the statement in a manner similar to this statement for ISO transactions and this statement for ESPP transactions." (Orrick)
Charitable Donations of Company Shares: Initiative by Facebook Founder Puts Stock Donations in the Spotlight
"For year-end donations, be sure the stock transfer is completed by December 31 to make it count for the current tax year. For electronic transfers from your brokerage account, the donation is recorded on the day it is received by the charity/foundation (not when you approve the transfer).... For a charitable donation of company stock acquired from equity compensation, the tax treatment is the same as it is for donations of any stock to a qualified charity." (
Equity and Phantom Equity Based Compensation for LLCs
"LLCs taxed as partnerships can issue: Restricted or Performance Units ... Capital Interests ... Profits Interests ... Phantom Unit Rights or Unit Rights ... Phantom Unit Appreciation Rights." (Jackson Lewis P.C.)
[Guidance Overview] Beware: Discounted Stock Options Are Subject to 409A
"Many small, closely held companies, especially start-up companies, like to issue stock options to key executives and employees as both an incentive to help grow the company and as a substitute for cash compensation when they need the cash to invest in the business. At times, the owners are unaware of the requirements under [Code section 409A] as it applies to stock options and stock appreciation rights (collectively 'options' or 'stock options) and fail to appropriately determine the exercise price. At other times, they simply don't want to pay for a valuation of the business to establish the exercise price. In both instances, the tax consequences for executives and employees can be disastrous." (EisnerAmper)
Trends and Gaps in Employee Stock Plan Communications Revealed by Survey of Multinational Companies
"[T]he use of equity awards by the surveyed companies generally continued to grow in 2014 and 2015, after falling in 2009-2011 and rebounding in 2012. With this growth in the use of equity has come an expansion in stock plan education and communications. While most of the surveyed companies (73%) communicate with plan participants at the time of grant, a widespread traditional practice, 47% of the companies now also communicate with participants again at the time of vesting, exercise, or payout. This figure rose from 37% in 2012. Some companies report that they communicate with participants at other times as well (or instead)." (
[Guidance Overview] Did the SEC Get It Right with Time-Based Equity in Its Clawback Proposal?
"Those who interpret statutory language for a living (mostly lawyers) might wonder how the SEC reached this conclusion.... [T]he SEC applied a nuanced reading of [Dodd-Frank section 954] and determined that the rule applies only to stock options that themselves have a performance-based vesting hurdle.... In the end, the SEC's decision made life easier for companies that would need to enforce clawbacks, but also will cause compensation committees to take a closer look to see if their pay mix is balanced properly between compensation that is and isn't subject to clawback." (Towers Watson)
Updated IRS Stock Compensation Audit Guide Provides Compliance Checklist
"[T]he IRS tells its auditors to determine whether: [1] stock was actually transferred; [2] stock options were transferred to a related person; [3] the purchase price was reduced for a note used to acquire employer stock; [4] elections were punctually made under IRC Section 83(b) and records verify these timely elections; [5] a substantial risk of forfeiture exists to delay vesting according to the facts and circumstances; and [6] dividends were paid on restricted stock." (
IRS Provides Guidance on Non-Qualified Deferred Compensation Plan Audits
"[T]he Audit Guide provides a reminder that a 401(k) plan may not condition, directly or indirectly, any other benefit with the exception of matching contributions, upon the employee's electing to make or not to make 401(k) under the arrangement. For example, the IRS will be looking for provisions in the NQDC Plan that Limits the total amount that can be deferred between the NQDC plan and the Company's 401(k) plan, or States that participation is limited to employees who elect not to participate in the 401(k) plan. In either of these plan provisions are found in the audit, the examiner is instructed to contact the Employee Plans division of the IRS that oversees 401(k) and other qualified plans. The rest, they say, can be history." (The Retirement Plan Blog)
Restricted Stock and Section 83(b) Elections: IRS Proposes Change to Filing the Election with Your Tax Return
"[T]he proposal seeks to end the requirement to file a copy of a Section 83(b) election with your tax return. This relaxation of the rules is expected to take effect for grants made on or after January 1, 2016. From that time onward, the IRS will simply scan and save a copy of your original election instead of requiring a second submission with your tax return. In addition to Section 83(b) elections for restricted stock, this rule change will also apply to 83(b) elections filed for early-exercise stock options." (
FASB Proposes Accounting Standards Update to Improve and Simplify Accounting for Stock Compensation (PDF)
5 pages. "The proposed ASU amends Topic 718 in the following eight areas ... [1] Stock-for-tax withholding ... [2] Presentation of stock-for-tax withholding on statement of cash flow ... [3] Accounting for award forfeiture ... [4] Accounting for excess tax benefits and deficiencies ... [5] Presentation of excess tax benefits and deficiencies on statement of cash flows ... [6] Classification of awards with contingent repurchase feature ... [7] Estimating expected term of stock option award for nonpublic companies ... [8] Using intrinsic value rather than fair value for liability awards for nonpublic companies." (Frederic W. Cook & Co., Inc.)
[Guidance Overview] 162(m) Deduction Limitation and Post-IPO or S-1 Grants of RSUs and Phantom Stock
"A company needs to take particular care in granting RSUs and phantom stock in the transition period after becoming public. For any grant made on or after April 1, 2015, pursuant to a plan or agreement in effect while the company was private, unless the RSU or phantom stock vests and is distributed or paid during the transition period, the transition relief will not apply. Instead, the company will need to avail itself of another exemption, most likely the exemption for qualified performance-based compensation." (Chiesa Shahinian & Giantomasi PC)
SEC Proposes Rules for Disclosure of Hedging Transactions
"If the proposed rules are implemented in their current form, public companies could be forced to choose between [1] disclosing that some forms of hedging are allowed under their hedging policies -- thereby risking adverse voting recommendations from proxy advisory services ... or [2] modifying existing hedging polices to limit investment approaches used to diversify concentrated stock positions, which would complicate compliance oversight of hedging policies and lead to changes by executives in their investment strategies, including potentially more sales of issuer stock under 10b5-1 programs." (McDermott Will & Emery)
Delaware Court of Chancery: Director Equity Grants Subject to 'Entire Fairness' Review
"The court found that the grants were a conflicted decision because all three members of the compensation committee that approved the grants also received the RSU awards. Citing Delaware Supreme Court precedent, the court noted director self-compensation decisions are conflicted transactions that 'lie outside the business judgment rule's presumptive protection, so that, where properly challenged, the receipt of self-determined benefits is subject to an affirmative showing that the compensation arrangements are fair to the corporation.' " [Valma v. Templeton et al., C.A.&ns9579-CB (Del. Ch. Apr. 30, 2015)] (, a blog by Stinson Leonard Street)
Eight Things You Need to Know About Equity Compensation
"[1] It's an 'except when' set of rules.... [2] Accounting (compensation expense) really matters.... 3) [E]very country has its own set of tax, security, currency and other rules.... [4] Plan design cannot be done in a vacuum.... [5] Stock administration systems are far more limited than your imagination.... [6] Taxes are hard. Really hard.... [7] You should join, or at least follow, these organizations.... [8] It's still worth the effort." (Performensation)
[Guidance Overview] Practical Advice for Compliance with Recent Amendments to Section 162(m) Regulations
"Public companies that want to preserve both the flexibility of their pre-IPO equity plans ... and the tax deductibility of their equity award grants may want to consider the following grant practices: [1] Grant performance-based restricted stock in lieu of performance-based RSUs during the reliance period.... [2] Grant only stock options during the reliance period. [3] Grant a lesser number of RSUs with modified vesting schedules such that all or a portion of the RSUs will be settled in stock during the reliance period.... Public companies that want flexibility with their plans can have a single limit for all equity grants or separate limits for different classes of equity[.]" (Orrick)
[Guidance Overview] Qualified Performance-Based Compensation Rules Are Finalized
"In response to comments to the proposed regulations, the final version of Regs. Sec. 1.162-27(e)(2)(vi)(A) provides that a plan satisfies the per-employee limitation requirement if the plan specifies an aggregate maximum number of shares with respect to which stock options, stock appreciation rights, restricted stock, restricted stock units (RSU), and other equity-based awards can be granted to any individual employee during a specified period under a plan the shareholders approved as required by Regs. Sec. 1.162-27(e)(4). In the proposed regulations, this rule mentioned only stock options and stock appreciation rights." (Journal of Accountancy)
Recurring Proxy Statement Disclosure Issues: Performance Share Reporting
"Nearly every company in America is making at least some of its equity award performance-based. Many have done so for years. In addition to the Form 4 reporting, two other questions ... relating to the unique reporting status of performance shares (or units) are: ... [1] Reporting Performance-Based Awards that Vest on the Last day of the Fiscal Year ... [2] Reporting Performance-Based Awards in the Summary Compensation Table." (Winston & Strawn LLP)
SEC Proposes Expanded Disclosures of Hedging Policies
"Under the proposed rule, companies could cross-reference the hedging policy disclosure in Item 407, which would meet the [compensation discussion and analysis] requirement for disclosure of hedging policies for [named executive officers]. However, this would make the entire policy, if it goes beyond covering just executive officers, subject to a say-on-pay vote." (Towers Watson)
The 2015 Aggregate Share-Based Compensation Report (PDF)
26 pages. "This report covers the three-year period from 2011 to 2013, and includes the following: [1] Company-wide annual grant rates, measured based on annual share usage and fair value transfer (FVT) ... [2] Overhang, measured based on share dilution as well as the fair value of outstanding grants; [3] Frequency and prevalence of long-term incentive plan share requests; [4] Allocation of long-term incentive pools to the CEO and other proxy officers; ... [5] Prevalence of employee stock purchase plans (ESPPs)." (Frederic W. Cook & Co., Inc.)
Comparing Nonqualified Stock Options to Awards of Restricted Stock
"[W]hen a company's stock has very little value, the recipient is likely to prefer restricted stock; however, as the value of the stock rises, the recipient may prefer NSOs because of the potential immediate tax (with an 83(b) election) on grant. On the other hand, if the company performs poorly, the stock's value may fall below the NSO's exercise price, rendering the NSO worthless. Restricted stock awards may be more complicated for the company because the recipient becomes a shareholder on the award date, even though some of the shares remain subject to forfeiture." (entreView)

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