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[Guidance Overview] Who Should the Company's Hedging Policy Cover Under the SEC's New Disclosure Rules?
"Neither the statute nor the SEC's rules are limited to named executive officers.... Some companies will establish (and publicize to employees) policies that broadly prohibit all employees from engaging in hedging transactions, at least with respect to stock received as compensatory awards, under the theory that the prohibition alone will deter most from hedging, even though the company may not be able to monitor compliance effectively.... [The authors] suggest that a company make this decision by first asking: For which individuals in our organization can we realistically monitor compliance?" (Winston & Strawn LLP)
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." (
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." (
[Guidance Overview] SEC Adopts Final Rules for Disclosure of Hedging Policies
"The new rule will require a public company to disclose whether, and to what extent, it has adopted practices or policies regarding the ability of employees, officers, and directors to engage in certain hedging transactions with respect to the company's equity securities." (Cadwalader, Wickersham & Taft LLP)
Making Sense of Form W-2 When You Have Stock Compensation
"If you exercised nonqualified stock options (NQSOs) last year, the income you recognized at exercise is reported on your W-2.... With incentive stock options (ISOs), the value of the exercise income appears on Form W-2 only if you made what is technically called a disqualifying disposition.... 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 have held the shares." (Forbes)
2019 Deadlines Approach to Furnish Incentive Stock Option and Employee Stock Purchase Plan Information Statements and Returns
"In addition to the employee information statements, corporations must file returns with the [IRS] on Forms 3921 and 3922 no later than February 28, 2019, if filed on paper, or April 1, 2019, if filed electronically. These information returns, Form 3921 for ISO exercises and Form 3922 for initial ESPP share transfers, must be filed electronically by any corporation required to file 250 or more of a particular return and may otherwise be filed either electronically or in paper form." (DLA Piper)
[Guidance Overview] Reminder: Employers Must Report 2018 ISO and ESPP Transactions
"Corporations that offer incentive stock options (ISOs) or maintain a tax-qualified employee stock purchase plan (ESPP) have an obligation to file returns with the IRS and to deliver information statements to employees and former employees regarding the acquisition of shares under such arrangements.... These forms are due regardless of any partial shutdown of the Federal government." (Latham & Watkins)
[Guidance Overview] Hedging Disclosure Is Here: SEC Adopts Final Rules
"The final rules ... require public companies to disclose their hedging practices and policies (whether or not written) for employees, officers and directors in proxy and information statements relating to the election of directors. This leaves only three sets of executive compensation-related rulemaking under the DFA that have not been finalized, related to performance-based compensation disclosures, clawback policies and excessive compensation at certain financial institutions." (K&L Gates)
[Guidance Overview] SEC Adopts Hedging Policy Disclosure Requirements
"Companies will be able to satisfy the new rules either by disclosing the practices or policies in full or by providing a fair and accurate description of their hedging practices or policies, including the categories of people affected and types of hedging transactions specifically allowed or not allowed. If a company does not have hedging policies, it will be required to state that fact or to state that hedging transactions generally are permitted." (Skadden)
[Guidance Overview] Details on the SEC's Final Rules on Hedging Policies
"The SEC resisted all requests to provide a definition of hedging, instead placing that burden entirely on the company ... However, the rules make it very clear that the SEC intends the disclosure requirement to apply very broadly.... There is less risk of misleading investors if the policy is disclosed word-for-word." (Winston & Strawn LLP)
[Guidance Overview] SEC Adopts Final Hedging Policy Disclosure Rules
"The final rules require companies to disclose certain hedging policies or practices, but do not require companies to adopt any new hedging policies or to amend any existing hedging policies. Many companies had already adopted some form of hedging policy when the SEC published the proposed rules in 2015 ... and have been voluntarily disclosing their hedging policies as part of their corporate governance disclosure. SEC proxy rules ... have also required some hedging disclosure in the Compensation Disclosure and Analysis (CD&A) section." (Goodwin Procter)
[Guidance Overview] SEC Adopts Dodd-Frank Hedging Disclosure Rule (PDF)
"The SEC expressly declined to adopt a definition of the term 'hedge' because it believes that the term should be applied as a broad principle.... [T]he new disclosure requirement ... is intended to cover all transactions that establish downside price protection in a registrant's equity securities ... It applies to the hedging of any equity security issued by the registrant, by any parent or subsidiary of the registrant or by any subsidiary of any parent of the registrant." (Mayer Brown)
[Guidance Overview] SEC Adopts Final Rules for Disclosure of Hedging Policies
"The final rules provide the following illustrative list of hedging transactions: prepaid variable forward contracts, equity swaps, collars and exchange funds. However, in the release to the final rule, the SEC notes that the term 'hedge' should be broadly applied to cover any financial transactions that are designed to hedge or offset any decrease in market value of the company's equity securities." (Meridian Compensation Partners, LLC)
[Guidance Overview] SEC Adopts Final Hedging Disclosure Rules
"The required disclosure must either provide a fair and accurate summary of the practices or policies that apply (including the categories of persons covered and any categories of hedging transactions that are specifically permitted or specifically disallowed) or disclose the practices or policies in full. In addition, if the company does not have any such practices or policies regarding hedging, the company must disclose that fact or disclose that the company generally permits its employees, officers and directors to engage in hedging transactions." (Vorys)
[Guidance Overview] Year-End Guidance on New Income Inclusion Deferral for Private Company Options and RSUs
"On December 7th, the IRS issued Notice 2018-97 to provide initial guidance on the new private company income inclusion deferral regime enacted under Code Section 83(i) as part of the 2017 Tax Cuts and Jobs Act.... [T]he Notice serves as validation of the widely-held sense that the risks and complexities of the deferral regime outweigh any potential benefits -- particularly for employers." (Baker McKenzie)
[Guidance Overview] SEC Adopts Final Hedging Disclosure Rule
"The final rule requires a description of any practices or policies a public company has adopted regarding the ability of its employees (including officers) and directors to engage in certain hedging transactions.... [M]ost companies must include this disclosure in their proxy and information statements relating to the election of directors during fiscal years beginning on or after July 1, 2019." (Ropes & Gray LLP)
[Guidance Overview] Text of SEC Fact Sheet on Final Rules for Disclosure of Hedging Policies
"The final rules implement Section 14(j) of the Securities Exchange Act of 1934, which was enacted by Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.... New Item 407(i) of Regulation S-K will require a company to describe any practices or policies it has adopted regarding the ability of its employees (including officers) or directors to purchase securities or other financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation, or held directly or indirectly by the employee or director.... Item 407(i) specifies that the equity securities for which disclosure is required are equity securities of the company, any parent of the company, any subsidiary of the company, or any subsidiary of any parent of the company.... Companies generally must comply with the new disclosure requirements in proxy and information statements for the election of directors during fiscal years beginning on or after July 1, 2019." (U.S. Securities and Exchange Commission [SEC])
[Guidance Overview] To Be or Not to Be ... Subject to the New Section 83(i) Deferral Process
"[C]ompanies will be able to opt out of Section 83(i) by not allowing employees to make the deferral election.... For companies that do want to allow their employees the option to make the deferral under Section 83(i), [Notice 2018-97] gave further details on the law's requirement that grants of RSUs or stock options must be made to not less than 80 percent of a corporation's employees in the U.S. per calendar year. It also clarified how employers must withhold taxes from the deferred income." (Holland & Hart LLP)
[Guidance Overview] Initial IRS Guidance for Section 83(i) Provides Mostly Good News
"[Notice 2018‑97] clarifies that the 80% test cannot be satisfied based on a single-date snapshot of the employer's US workforce.... [E]mployers are on the hook to pay the required income tax withholding even if the employer cannot obtain the funds from an employee or former employee.... Because escrow of deferral stock is now mandatory, ... employers can prevent awards from being qualified equity grants by not entering into an escrow arrangement with the grantee." (Trucker Huss)
IRS Guidance on Private Company Grants of Stock Options and RSUs Provides Limited Support
"To make qualified equity grants, the company must issue grants to at least 80% of employees in a single calendar year. The law does not provide for a cumulative basis that considers grants from prior years.... This makes it more difficult for early-stage startups, as they primarily make new-hire grants, not annual grants that can more easily fit into a calendar year." (Bruce Brumberg, in Forbes)
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)
Stock Compensation Can Add Zing to Your Benefits Package
"Aside from the traditional retirement plan and medical benefit offerings, some employers may find value in offering creative stock bonus and compensation programs like stock options, restricted stock, and other equity-type arrangements.... This article addresses three sources of federal law that must be kept in mind when designing and implementing a stock compensation program -- the Internal Revenue Code, ERISA, and securities laws." (Holland & Hart LLP)
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)
[Guidance Overview] FASB Issues Accounting Standards Update on Accounting for Stock Compensation to Nonemployees (PDF)
"Previously, Topic 718 applied only to stock compensation granted to employees ... Stock compensation granted to nonemployees was subject to vesting date, ... fair value principles that required companies to remeasure fair value at each reporting period until settlement for equity-classified awards. The expansion of Topic 718 to include nonemployees ... will simplify accounting by making most equity-classified awards subject to fixed grant date fair value principles, thereby eliminating the variable mark-to-market accounting." (FW Cook)
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)
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)
Ninth Circuit Overturns Altera and Revives Regulations on Cost Sharing of Stock-Based Compensation
"The Regulations required related entities to share the costs of employee stock-based compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing arrangements under Section 4824 and the relevant Treasury Regulations.... [T]he Ninth Circuit first determined that Treasury had complied with the APA in promulgating the Regulations ... [and] then applied the two-part Chevron analysis to hold that the Regulations were a permissible interpretation of Section 482." [Altera Corp. v. Comm'r, Nos. 16-70496, 16-70497 (9th Cir. July 24, 2018)] (Wilson Sonsini Goodrich & Rosati)
[Guidance Overview] SEC Solicits Comment on Modernizing Rules Related to Compensatory Securities Offerings and Sales
"The Concept Release solicits comments on questions relating to: [1] 'Gig economy' relationships, or new types of contractual relationships between companies and individuals involving alternative work arrangements, to better understand how they work and determine what attributes of these relationships potentially may provide a basis for extending eligibility for the Rule 701 exemption. [2] Whether the SEC should further revise the disclosure content and timing requirements of Rule 701(e). [3] Whether the use of Form S-8 to register the offering of securities pursuant to employee benefit plans should be further streamlined." (Thomson Reuters Practical Law)
[Official Guidance] Text of SEC Concept Release and Request for Comment on Compensatory Securities Offerings and Sales (PDF)
"Since Rule 701 and Form S-8 were last amended, forms of equity compensation have continued to evolve and new types of contractual relationships between companies and the individuals who work for them have emerged. In light of these developments ... we believe this is an appropriate time to revisit the Commission's regulatory regime for compensatory securities transactions. We therefore solicit comment on possible ways to update the requirements of Rule 701 and Form S-8, consistent with investor protection. We also solicit comment on what effects any revised rule or form may have on a company's decision to become a reporting company." (U.S. Securities and Exchange Commission [SEC])
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)
A Stock Plan Is Not Necessarily an ERISA Plan
"[The Second Circuit] essentially held that, when the primary purpose of a stock ownership plan was something other than deferring income or providing retirement income, ERISA may not govern. Though the Court asserted that the distinction between a pension plan and one that offered present benefits was 'crisp and unambiguous,' one might be forgiven for harboring doubt that the line is as well-defined as the Court believed.... [T]he Second Circuit adopted the rationale that sometimes the statute should not be construed literally, and it read 'primary purpose' into the definition of employee pension benefit plan." [Pasternack v. Shrader, No.16-217 (2d Cir. July 13, 2017)] (Robinson + Cole LLP)
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)
A New Year, A New Stock Plan (PDF)
"The items listed [in this article] reflect recent changes in applicable corporate governance, securities, tax, and accounting rules.... [It] is usually preferable to seek shareholder approval for a new plan that covers the entire spectrum of desired improvements, globalization of the workforce, e-delivery innovations, and governance practices responsive to the concerns of shareholders and the standards enunciated by proxy advisory firms such as ISS and Glass Lewis." (The Wagner Law Group, via Bloomberg BNA Pension & Benefits Daily)
Survey Results: Equity Compensation Plan Participants
"For one-third of employees, equity compensation was the main reason, or one of the main reasons, they accepted their current job ... Just one-quarter of employees have exercised or sold any of their equity compensation/ESPP ... Employees are, on average, 63% vested in their equity compensation ... Millennials are most confident in making decisions about their equity comp/ESPP, but are less likely than other generations to see it as part of their long-term financial plan ... Two-thirds of employees who are offered a workplace financial wellness program take advantage of it ... In addition to help with equity comp, employees are looking for help with retirement planning and wealth-building." (Charles Schwab)
[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)
[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)
Tax Reporting for Stock Comp: Understanding Form W-2, Form 3922, and Form 3921
"For employees with stock compensation, tax-return paperwork and the information it contains can be confusing and hard to decipher. This [article] provides an overview of the reporting you need to understand." (
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." (
[Guidance Overview] ISS Issues 2018 Final Policy Updates and Additional Guidance on Pay-for-Performance Assessment and Equity Plan Evaluations
"The policy updates and guidance revise ISS proxy voting policies and methodologies for U.S.-listed companies in the following areas relating to executive compensation ... [1] ISS quantitative pay-for-performance assessment, [2] ISS Equity Plan Scorecard evaluation, [3] Evaluation of non-employee director compensation, [4] Problematic pledging of company stock, [5] Lack of (i) Say on Pay or (ii) Say on Pay Frequency ballot items, [6] Board responsiveness to low shareholder support on a Say on Pay proposal." (Meridian Compensation Partners, LLC)
[Official Guidance] Text of Instructions for IRS Forms 3921 and 3922: Exercise of an Incentive Stock Option Under Section 422(b) and Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c) (PDF)
Rev. Oct. 2017. "Every corporation which in any calendar year transfers to any person a share of stock pursuant to that person's exercise of an incentive stock option described in section 422(b) must, for that calendar year, file Form 3921 for each transfer made during that year.... Every corporation, which in any calendar year records, or has by its agent recorded, a transfer of the legal title of a share of stock acquired by the transferor (person who acquires the shares pursuant to the exercise of the option) pursuant to the transferor's exercise of an option granted under an employee stock purchase plan and described in section 423(c) (where the exercise price is less than 100% of the value of the stock on the date of grant, or is not fixed or determinable on the date of grant), must, for that calendar year, file Form 3922 for each transfer made during that year." (Internal Revenue Service [IRS])
[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." (
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." (
Developments in Tax Withholding for Equity Awards Under Employer Stock Plans
"When an employee exercises or settles an award such as a stock option or restricted stock unit, there is often a measure of value that must be included in the employee's compensation income. Consequently, employers are required to withhold and remit payroll and income taxes with respect to that compensation, and employers will typically require employees to satisfy their portion of those taxes.... Two recent developments -- one in the accounting arena and the second in securities law -- affect how this withholding can be handled." (Holland & Hart LLP)
Intricate Mix of Restricted Stock, Performance Shares, and Stock Options in LTI Vehicles
"While the rise of restricted stock/RSUs and performance shares, along with the relative decline of stock options, has been well documented for many years, ... stock options have not disappeared but are often being granted to supplement full-value awards such as restricted stock and performance shares, especially in long-term incentives (LTIs) designed for executives." (
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)
Practical Considerations Relating to Share Withholding for Taxes
"[A new FASB rule] permits cash settlement of a share-based award for tax withholding up to the maximum statutory tax rate in the applicable jurisdiction without causing adverse accounting treatment of the equity award. The rule generally became effective for calendar year companies on January 1, 2017. Many companies are now considering implementing increased share withholding for taxes and must consider their existing equity plan provisions and securities law, IRS, and payroll issues." (Morgan Lewis)
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." (
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