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Stock options

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Delaware Chancery Court Refuses to Dismiss Derivative Action Alleging Breach of Fiduciary Duty and Unjust Enrichment Related to Stock Option Repricing
"[T]he Delaware Chancery Court ruled that the plaintiff's derivative action largely survived a motion to dismiss because it is reasonably conceivable that several directors and officers of Anixa Biosciences, Inc. breached their fiduciary duties and were unjustly enriched by delaying the announcement of a key patent's issuance, permitting the repricing of the defendants' stock options for their benefit before the public announcement was made." [Howland v. Kumar, No. No. 2018-0804-KSJM (Del. Ch. June 13, 2019)] (Thomson Reuters Practical Law)
Private Company Stock Grants: Recent SEC Filings by Uber and Other IPO Companies Reveal Plan Design Trends
"Some major private companies in the tech sector have recently gone public or are about to.... [One innovation] for employees at private companies is early-exercise stock options. Instead of letting you exercise options only after the vesting date, when you might face a big taxable spread between the exercise price and the fair market value of the stock, the company instead grants options that are immediately exercisable.... Larger, later-stage pre-IPO companies often grant RSUs instead of stock options[.]" (
How to Avoid Overpaying Taxes on Stock Sales
"[F]or sales of company stock acquired from most grants of equity compensation and ESPPs, brokers will report to the IRS and you the unadjusted partial basis for all grants.... [1] [E]nter the Form 1099-B cost basis in column (e) of Form 8949.... [2] Identify the type of capital gain or loss.... [3] Adjust the gain or loss.... [4] Explain the reason for the adjustment.... [5] What to do if no cost basis is shown." (
[Guidance Overview] What Constitutes Hedging Under the SEC's New Disclosure Rules?
"[T]he SEC resisted all requests to provide a definition of hedging, instead placing that burden entirely on the company (and counsel). The SEC declined even to state that the purchase and sale of mutual funds, index funds, and other diversified investment vehicles were excluded from the definition of hedging.... So what is a company to do? Should the company attempt to define hedging or provide examples of what sorts of transactions are prohibited?" (Winston & Strawn LLP)
2019 Federal Budget Includes Proposed Changes to Tax Treatment of Stock Options
"The government has proposed to limit the preferred tax treatment for stock options.... The proposed rule will only affect employees of 'large, long-established, mature firms'. The Budget does not define these companies but has indicated that start-ups and 'rapidly growing businesses' will be exempt. $200,000 of options granted each year will remain eligible for preferred tax treatment at the time they are exercised." (Meridian Compensation Partners, LLC)
Beware These Tax-Return Errors with Restricted Stock and RSUs
"[1] Not reporting income until the full grant vests.... [2] Double-reporting income on Form 1040.... [3] Not reporting the stock sale.... [4] Using too low a cost basis for the capital gains calculation.... [5] Miscalculating the number of shares surrendered or sold for taxes." (
How to Reduce the Tax Impact of Your Stock Options or Restricted Stock Units
"Exercise early-stage ISOs before their value increases ... Make the 83(b) election for early exercise ... Exercise ISOs to AMT crossover point ... Raise your ordinary income with same-day sales ... Exercise ISOs early in the year ... Take deductions in years with high RSU vesting income." (Moss Adams LLP)
Review Equity Award Forms for Massachusetts Employees
"[U]nder the new [Massachusetts] rules: [1] Employers must pay or provide for 'garden leave' or 'other mutually-agreed upon consideration' if a post-employment noncompete covenant is included; [2] The duration, geographic reach and scope of the noncompete must fit within specified parameters; and [3] A post-employment noncompete restriction is enforceable only in limited circumstances[.]." (Skadden)
Compensatory Action Items to Consider this Proxy Season
"The most common reason for a negative recommendation from ISS is a perceived pay-for-performance disconnect within the compensation structure. Robust disclosure on this point can help ... [I]ssuers with non-grandfathered arrangements should consider simplifying compensation administration by eliminating certain procedure requirements that were required under Section 162(m).... Consider whether to revise the net withholding rate within the equity incentive plan from the supplemental rate of 22% to the highest marginal rate." (Hunton Andrews Kurth)
[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." (
[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)
Stock Option Back-Dating Again? Well, Not Quite
"[C]ompanies ... may be releasing negative information before an option grant ('bullet-dodging') or holding back positive information until after the grant ('spring-loading').... The SEC does not prohibit companies from timing option grants in this way. It simply requires the Company to disclose to shareholders whether it has such a practice, since this practice likely would be material to investors." (Winston & Strawn 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)
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])
[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)
Making Charitable Donations of Stock Instead of Cash After Tax Reform
"If you're charitably inclined and hold meaningful amounts of appreciated stock, such as shares acquired from a stock option exercise, restricted stock/RSU vesting, or ESPP purchase, donating stock instead of cash can be a smart tax-planning move.... [S]tock donations can reduce your taxes by giving you total deductions that exceed your new increased standard deduction amount." (Forbes)
Key Facts to Know About Your Restricted Stock and RSU Grants
"Do I have a grant of restricted stock or a grant of restricted stock units? What are the key differences? ... Is vesting based on duration of employment or on performance goals? What would happen to the vesting of my grant if I were to leave or lose my job, die, become disabled, or retire? ... With RSUs, can I defer the delivery of the shares at vesting? If my company pays dividends to shareholders, will I get dividends on my restricted stock? If so, when? ... What would happen to my restricted stock in a corporate acquisition or merger?" (
Key Tax Planning Strategies for Executives Receiving Stock-Based Compensation
"For those technology executives who derive a significant amount of income from stock-based compensation, a variety of planning opportunities are available -- such as estate planning, change in residency, and charitable giving. Regardless of which avenues are pursued, early planning is instrumental in helping executives get the most value from their options." (Moss Adams LLP)
Questions to Ask About Your Performance Share Grant
"[1] What are the performance goals and metrics as stated in your company's plan? ... [2] What is the performance period during which the goal must be reached? ... [3] Is there a sliding scale for share payout? ... [4] What would happen to your performance share grant if you were to lose your job, retire, become disabled, or die? ... [5] Is there an election to defer the delivery of the shares (and the taxes) beyond the normal time of share payout? ... [6] What happens to my performance share grant if my company is acquired?" (
Stock Compensation: 2018 Assumption and Disclosure Study (PDF)
"When valuing stock options, companies continue to rely heavily on the Black-Scholes option pricing model, with 77% of Large companies relying solely on the use of that model in valuing their stock option awards. However, 23% of Large companies disclose use of other models ... Overall, median Black-Scholes option pricing model assumptions for High Tech companies moved similarly to those of the Large company group, from 2016 to 2017." (PwC)
Ninth Circuit Withdraws Altera Decision, Leaving the Tax Court Decision in Force for Now
"[T]he Tax Court [had] invalidated [Treas. Reg. 1.482-7A(d)(2)] which provides that in the context of qualified cost-sharing agreements the cost of employee stock compensation must be treated as a per se expense allocated between related parties.... On July 24, 2018, the Ninth Circuit by a vote of 2-1 reversed the Tax Court's [decision] ... Prior to the release of the opinion, one of the two judges who voted to reverse the Tax Court died.... The decision to withdraw the case ... was done by the Court and appears to be an admission by the Court that they made a mistake in allowing Judge Reinhardt's vote to be cast after he passed." [Altera Corp. v. Comm'r, Nos. 16-70496, 16-70497 (9th Cir. Aug. 7, 2018)] (EisnerAmper)
CEO Compensation Surged in 2017
"The first measure includes stock options realized (in addition to salary, bonuses, restricted stock grants, and long-term incentive payouts). By this measure, in 2017 the average CEO of the 350 largest firms in the U.S. received $18.9 million in compensation, a 17.6 percent increase over 2016.... The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989 ... [The authors also track] the value of stock options at the time they are granted. By this measure, CEO compensation rose to $13.3 million in 2017, up from $13.0 million in 2016." (Economic Policy Institute)
Ninth Circuit Withdraws Altera Opinion
"The Ninth Circuit ... announced that it is withdrawing its July 24 opinion in the Altera Corp. case. The order announcing the withdrawal says it is being done 'to allow time for the reconstituted panel to confer on this appeal.' ... The Ninth Circuit [had found Treas. Reg. Sec. 1.482-7A(d)(2)], which requires related entities to share the cost of employee stock compensation for their cost-sharing arrangements to be considered qualified cost-sharing arrangements (QCSAs) and avoid IRS adjustment, withstands scrutiny under general administrative law principles and is therefore valid. " [Altera Corp. v. Comm'r, Nos. 16-70496, 16-70497 (9th Cir. Aug. 7, 2018)] (Journal of Accountancy)
[Guidance Overview] SEC Doubles Disclosure Obligation Threshold, Seeks to Modernize Compensatory Securities Offerings (PDF)
"Issuers relying on the Rule 701 exemption to offer securities under a compensatory arrangement are required to deliver additional disclosures ... to investors if the amounts offered exceed a set threshold.... Congress mandated the recent change to address concerns that the prior $5 million threshold increased the costs associated with using company stock to compensate employees and put non-reporting companies at risk of having to disclose confidential financial information." (Debevoise & Plimpton LLP)
SEC Provides Disclosure Relief, Considers Employee Stock Purchase Rules
"The SEC voted ... to provide disclosure relief for certain securities offerings related to employee compensation, and to seek public comment on ways to modernize its rules for employee stock compensation. Rules adopted [July 18] raised the threshold for the aggregate sales price or amount of securities sold in compensatory arrangements that require an issuer to deliver additional disclosures to investors ... from $5 million to $10 million for any 12-month period." (Journal of Accountancy)
SEC Eyes Equity Compensation Changes for 'Gig Workers'
"The SEC solicited public comment on potential changes to the regulator's treatment of equity compensation, tied to the emergence of the 'gig economy.'... Explaining the thinking behind its call for commentary, SEC highlights that equity compensation can be an important component of the employment relationship." (planadviser)
A Key Threshold Is Increased for Private Company Equity Compensation
"Many private companies restrict their equity compensation grants so as to stay within [the SEC Rule 701] $5 million limit and thereby avoid the requirement to disclose confidential financial and other information about the company, even if that means offering less equity to employees than the owners might otherwise like to provide.... Section 507 of the [Economic Growth, Regulatory Relief, and Consumer Protection Act, signed into law on May 24,] directs the SEC to revise Rule 701(e) within 60 days of enactment to increase this amount to $10 million and thereafter to index it for inflation every five years[.]" (Willis Towers Watson)
SCOTUS Decision on Stock Options at Railroad Companies: Do the Justices Understand Stock Compensation?
"For Justice Gorsuch, the author of the majority opinion, it didn't seem to matter as much that stock options can be easily exercised and the shares sold for money. Yet in the minority opinion, Justice Breyer elucidates in detail the procedure for cashless exercises and provides data on how a large percentage of employees at railroad companies use this exercise method." [Wisconsin Central Ltd. v. U.S., No. 17-530 (U.S. June 21, 2018)] (
Two Cheers for Deferred Taxation of Qualified Equity Grants
"With a qualified equity grant, an employee can elect to defer income taxes -- but not FICA -- for up to five years from when compensation would have otherwise been included in income.... So qualified equity grants are more attractive to companies expecting to be sold or go public in five years." (Miles & Stockbridge)
Gap Between Equity Comp Aspiration and Action Shows Need for Employee Education and Financial Advice
"[O]nly 24% of [survey participants] have actually exercised employee stock options or sold shares acquired from equity comp. Among the rest, 34% admit to being worried about selling in adverse market conditions, and another 34% say they fear the tax consequences of making an uninformed or bad decision. These findings are all the more remarkable because over a third of the participants (36%) actually report that stock comp was one of the reasons why they took their current job to begin with." (
Stock Awards Behind Most CEO Pay Hikes
"More CEOs at large money managers or banks with large asset management units received total compensation increases in 2017 compared with the previous year, and most increases came via stock awards -- a practice that sources said would continue as managers tie chief executive pay to long-term performance." (Pensions & Investments)
IRS Filing Deadlines and Stock Compensation Planning for 2018
"In any tax season, the recognition of income from stock compensation or an employee stock purchase plan can complicate your return. Examples include income from an NQSO exercise, an ISO or ESPP disqualifying disposition, or the vesting of restricted stock.... [T]his tax season has the potential to be more confusing than most if you sold any stock last year. Issues are especially likely to arise with the cost basis as reported on Form 1099-B and with the tax-return reporting on Form 8949 and Schedule D." (
Credit Karma Settles with SEC over Alleged Stock Option Disclosure Failures
"The [SEC] recently instituted a cease-and-desist proceeding against Credit Karma, Inc.... for failing to provide adequate disclosure to its stock option holders pursuant to SEC Rule 701 because Credit Karma did not comply with relevant disclosure requirements for offerings in excess of $5 million.... Credit Karma agreed to a settlement with the SEC and paid a civil penalty of $160,000 -- well above what the disclosures would have cost.... Rule 701 is a safe harbor exemption that excuses certain employee benefit plans, including stock incentive plans, from registering equity offerings and sales under the Securities Act." (DLA Piper)
Stock Options Are Not as Flexible as You May Think
"Many employers also choose to place limits on how long employees are permitted to exercise options following termination of employment in order to: [1] limit the upside benefit to terminated employees as a result of subsequent appreciation in the value of the awards and/or [2] help employees preserve the tax-favored status of their ISOs ... If the options are NSOs (or were originally intended to be ISOs, but no longer qualify) that are structured to be exempt from Code Section 409A ... then the term may only be extended in limited circumstances without adverse tax consequences[.] (Foley & Lardner LLP)
Restricted Stock/RSUs and Tax Returns: Eight Costly Mistakes to Avoid
"[1] After selling any or all of the shares at vesting, you still need to report this sale on Form 8949 and Schedule D even though you are also including it as part of your compensation income.... [2] [Y]our tax basis for reporting the stock sale in column (e) on Form 8949 is the amount of compensation income at vesting that appeared on your 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." (
New Tax Law Provides Tax Deferral Opportunity for Certain Private Company Equity Grants
"[New] Code Section 83(i) ... will allow certain private company employees to defer federal income tax on eligible stock options and restricted stock units for up to five years following their respective exercise or settlement.... Section 83(i) could be useful for bridging the gap between when an employee is subject to income tax and when the employee's shares can be liquidated." (Morgan Lewis)
Stock Option Values: A New Rule of Thumb for Large Caps
"Lower valuations require substantially more options in order to deliver the same grant-date value. This may cause affordability concerns relative to dilution and the impact on share pool burn rate. More options also provide the executive with greater leverage if the stock price goes up. Companies should consider these factors carefully when deciding how best to utilize stock options as an executive compensation vehicle." (Meridian Compensation Partners, LLC)
[Guidance Overview] New Section 83(i) Election for Employee Stock Options and Restricted Stock Units
"The corporation must have a written incentive plan in place that grants stock options or RSUs to at least 80% of its full-time U.S. employees. The stock option or RSU award must be in exchange for the employee's services and not subject to buy back by the corporation. The corporation must provide notice to their eligible employees about the right to make the 83(i) Election as well as the tax impact of making such election." (Morris, Manning, & Martin, LLP)
[Guidance Overview] Annual Reporting Requirements for Incentive Stock Options and Employee Stock Purchase Plans
"[A] separate Form 3921 or Form 3922 [must] be filed with the IRS for each transaction ... even if one participant has multiple transactions during the year. If a company provides participants with an information statement that meets the substitute statement requirements, ... the company may aggregate transactions and provide only one substitute statement to each participant who had multiple transactions during the year." (Orrick)
[Guidance Overview] 2018 Deadlines Approach to Furnish ISO and ESPP Information Statements and Returns
"[A] corporation [must] furnish a written statement to any employee or former employee who either [1] exercised an incentive stock option (ISO) ... during 2017 or [2] during 2017 first transferred legal title to shares acquired under the corporation's employee stock purchase plan (ESPP).... The corporation must furnish these statements on Forms 3921 and 3922 no later than January 31, 2018.... [C]orporations [also] must file returns with the [IRS] on Forms 3921 and 3922 no later than February 28, 2018, if filed on paper, or April 2, 2018, if filed electronically." (DLA Piper)
Are ISOs Back?
"Generally, ISOs do not result in a tax deduction for the company, but they do provide favorable tax consequences for the employee recipients. As long as the company will not be able to deduct the gain on equity awards anyway, why not provide better tax treatment to the executives?" (Winston & Strawn LLP)
[Guidance Overview] Executive Compensation Changes Under Tax Reform: An Update for Plan Sponsors (PDF)
"While the transition rule may seem straightforward, employers should exercise caution before modifying existing contracts if they wish to preserve the grandfathered status of those arrangements.... [If] qualified stock is transferred to a qualified employee and the employee timely makes a Section 83(i) election, the employee recognizes income with respect to that stock in the tax year that includes the five-year anniversary of the date the employee's rights in the stock vest, subject to earlier inclusion if certain events occur." (Drinker Biddle)
[Guidance Overview] New Code Section 83(i): Qualified Equity Grant Programs Permit Employees to Elect to Defer Income Taxes on Stock Options or RSUs (PDF)
"[W]hen an employee vests in a qualified equity grant, the employee can elect to defer for up to five years the income taxes that otherwise would be due on the date the stock vests or is transferred to the employee.... [W]hen an employee makes a Code section 83(i) deferral election, the 'deferral stock' begins its holding period for long-term capital gain tax treatment on the date the qualified stock is transferred to the employee, even though the employee will not pay taxes on the value of the qualified stock for up to five years." (Trucker Huss)
Deadlines Approach for Employer Reporting of 2017 ISO and ESPP Transactions
"The deadline for furnishing Copy B of Forms 3921 and 3922 to the employee or former employee for ISO exercises or ESPP shares purchased during 2017 is January 31, 2018. The deadline for filing Copy A of Forms 3921 and 3922 with the IRS depends on whether the returns are required to be filed electronically or manually.... These reporting obligations are in addition to any reporting obligations that arise upon the disqualifying disposition of shares acquired under either an ISO or an ESPP or upon the exercise of an option that does not qualify as an ISO." (Latham & Watkins)
Does Equity Compensation Count as Wages Under Federal and California Law?
"Many starts-ups -- particularly those that are initially cash-poor -- consider offering new hires equity in the business, either in lieu of or in addition to wages. While this approach would seem to solve the recruiting problem, it can lead to legal trouble. In fact, payment of employees through stock or stock options can violate both federal and California wage and hour laws.... [T]he issue is fairly complex." (Littler)
Year-End Checklist of Items to Review, Know, and Consider About Your Stock Compensation
"As 2017 draws to its close, the new tax-reform law is getting a lot of attention, and it will certainly affect tax rates in the future ... [D]on't forget the fundamentals of year-end planning. [This checklist] summarizes what you need for comprehensive year-end financial and tax planning with stock compensation." (
Recent Developments Affecting Performance-Based Equity Awards
"[1] [T]he most common metrics of performance awards at the 'Equilar 500' companies in 2016 were relative TSR (52.4%), ROC/ROIC (34.9%), EPS (30%), revenue (17.8%), and cash flow (14%).... [2] In September, RSUs granted by Apple in 2014 paid out at the end of their cycle after the associated performance conditions were met.... The footnotes in the related Form 4 filings ... provide details on the grant, including its payout scale, and an example of Section 16 reporting ... [3] [A] federal district court in Massachusetts ruled that a covenant of good faith and fair dealing applies to potentially protect someone with unvested performance-based grants." (
Analysis of Executive Change in Control Arrangements of the Top 200 Companies (PDF)
24 pages. "[T]his study analyzes the benefits received by the CEOs and other named executive officers ('Other NEOs') at the 20 largest public companies in 10 different industries, based on market capitalization.... The prevalence of a three times or higher severance multiple for CEOs has fallen from 37% in 2015 to 33% in 2017 ... 67.5% of the average 2017 total [change in control] amounts for CEOs and Other NEOs is made up of equity awards. This is down slightly from 70.4% in 2015.... 90% Percent of companies that currently provide an excise tax gross-up or modified gross-up payment have indicated that they intend to phase out or completely eliminate excise tax gross-up provisions in the future." (Alvarez & Marsal)
New Tax Reform Bill: Major Changes to Executive Compensation Lead Impact on Benefits and Compensation Practices (PDF)
9 pages. "Employers that have used nonqualified deferred compensation plans to attract and retain highly compensated employees ... would need to consider alternatives to achieve their goals ... With the possible exception of incentive stock options, there would appear to be no reason for employers to grant stock options or stock appreciation rights.... [R]ule changes would ease the ability of employees to take hardship withdrawals and would reduce some of the complexity in administering hardship withdrawals.... As a taxable contribution, [Dependent Care FSAs] would be effectively eliminated as they would have no value to employees.... The Tax Bill does not eliminate Health Care Flexible Spending Accounts." (Smith, Gambrell & Russell, LLP)
House Bill Could Prompt the Most Significant Changes in Pay Plan Design in a Generation
"The proposal would do away with the performance-based compensation exception to the $1 million pay cap under current Code Section 162(m).... Without the need to meet the performance-based pay exception, companies would no longer need to get shareholder approval of their plans for 162(m) purposes, nor would compensation committees need to set performance goals within the first 90 days of the performance period. They also would no longer be limited to using negative discretion only in making their bonus and LTI payout determinations." (Willis Towers Watson)
Proposed Tax Bill Would Make Big Changes to (and Create New Opportunities for) Executive Compensation
"[T]ax-exempt and governmental employers have been dealing with these rules for decades, and these employers still manage to provide deferred compensation to their executives. In some ways, tax-exempt employers have less flexibility to design these types of plans than for-profit employers, but in other ways, tax-exempt employers think quite clearly and strategically about the mix of incentive-based pay and supplemental retirement benefits. Second, the Proposed Act will not be the final word on these types of arrangements. Even if the Proposed Act's terms remain in a final bill that becomes enacted (a big 'if'), the Proposed Act directs the Treasury Department to issue regulations that define certain terms and carve out exceptions." (Porter Wright Morris & Arthur LLP)
Proposed Tax Bill Changes Are Worse Than We First Reported
"The Bill would essentially end the deferral of compensation, supplemental executive retirement plans, and excess plans, as we know them by replacing Code Sections 409A and 457A with a new Code Section 409B, effective for services performed after December 31, 2017.... The Transition rules provide that all deferred compensation amounts and accrued benefits as of December 31, 2017 will be grandfathered under the rules of 409A until 2025. In 2025, those amounts when the will recognized as income, unless they remain subject to a substantial risk of forfeiture.... Supposedly another version of the Tax Bill is expected this week, so everything in here may be superseded." (Winston & Strawn LLP)
House Draft of Tax Reform Bill Contains Opportunities and Surprises for Stock Compensation
"Among those who receive grants of incentive stock options (ISOs), much rejoicing would occur if the AMT were repealed. Companies might then use incentive stock options more frequently.... Stock options and stock appreciation rights could get caught up in the definition of NQDC, at least in the House draft legislation. If so, that could lead to taxation at vesting! However, considering the way in which stock options and SARs were initially penalized in the early versions of the Section 409A regulations, we would expect that if this provision continues it will be amended to apply only to discounted grants." (
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." (
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