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Stock options

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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)
[Opinion] An Obituary for Equity Compensation, d. 2017
"Stock Options, Restricted Stock Units, young Performance Units and their cousin Non-Qualified Deferred compensation tragically died in 2017 as an unintended consequence of colliding with the 429 page U.S. tax reform ... Employee Stock Purchase Plan is currently in critical condition at a local hospital.... The proposed tax reform bill of 2017 would eliminate many of the time-tested and successful components of equity compensation, effectively removing one of the three legs of many companies' three-legged stool of compensation philosophy." (Performensation)
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." (Mazursky Constantine LLC)
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." (
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)

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