Selected Recent Developments in Executive Compensation
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- Notice 2010-80 - Relief With Respect to Correction Methods and Payment Conditioned on Executing Release - BNA Pension & Benefits Daily (12/09/2010) - Notice 2010-80, issued on Nov. 30, 2010 provides relief for severance conditioned on terminated employee signing release, in that payment can be set within, e.g., 60 (or 90) days and if such payment period straddles two years the payment must be made in the second year. There is transition relief for correcting this documentary error through Dec. 31, 2012. There is also relief regarding: (i) certain linked plans and stock rights are included in documentary correction; (ii) information and reporting requirements for operational corrections; and (iii) information and reporting requirements for documentary corrections. Prompt attention for 409A corrections may be needed, as some of the transitional rules for corrections expire Dec. 31, 2010. (word doc)
- Executive Compensation Provisions of Dodd-Frank Wall Street Reform And Consumer Protection Act Of 2010 - Dodd-Frank Act (July 21, 2010) contains say-on-pay and other shareholder-accountability executive compensation proxy rules. There must be a nonbinding say-on-pay vote every 1, 2 or 3 years. There must also be non-binding say-on-golden parachutes in a transaction proxy. These votes
effective on the first shareholder meeting occurring on or after January
21, 2011
are effective on the first shareholder meeting occurring on or after January 21, 2011. There are proposed regulations on say on pay and say on golden parachute. Listing exchanges must provide for more stringent recoupment/clawback for current or former executive officers of incentive compensation paid during the past three years based on erroneous data if the company is required to restate the financials. Stock exchanges shall require that listed companies have compensation committee members who are Board members and are also “independent”. A compensation consultant or other advisor may be selected only after the compensation committee has taken into account relevant factors determining independence. The compensation committee will be directly responsible for appointment, compensation and oversight of the work of the consultant or advisor. These provisions go into effect July 16, 2011. The proxy must contain a policy regarding permissibility of employees or directors purchasing derivatives to hedge against equity grants. Under the Act rules are to be issued by Jan. 17, 2011 requiring listed company proxies to disclose why CEO and Chairman are the same person or two separate people. (word doc)
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- Update re New TARP Executive Compensation Developments - Update re 409A Documentary Corrections Prior to Year of Vesting - EB/EC Update 7/4/09 - Way to correct even form failures if correction takes place before the year in which the deferred compensation vests. Proposed regulations re calculation of amount includible in income provide that there will only be tax and penalties in the year of failure, and only if the deferred amounts will have vested prior to the end of such year. Thus, if deferred amounts are unvested, and a deferral election acceleration that does not comply with § 409A occurs in such year but the plan complies in the year in which the amounts vest, there will be no § 409A tax. (word doc)
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- Form 8-K Developments - Update - EB/EC Law Update 5/21/09 - SEC Form 8-K required within 4 business days of material events. NYSE eliminates the need for press releases if information made public in form 8-K or otherwise; minor revisions to Form 8-K C&DI's and to Regulation S-K C&DI's. ( http://www.ebeclaw.com/memos/EBEC_Law_Update_-_Form_8-K_Developments.doc ) (word doc)
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- Summary of AARA 2009 Exec Comp Changes to TARP Provisions - EB/EC Law Update 3/7/09 - ARRA 2009 Revisions to Executive Compensation Provisions of EESA 2008, including: $500,00 limit for top 5 executives, bonuses and incentive compensation to top 25 employees only allowed for certain restricted stock, clawback of bonuses and incentive compensation of top 25 employees where payments due to materially inaccurate financial statements, no severance to top 10 employees, independent compensation committee required, and nonbinding say on pay vote. (word doc)
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- Summary of Exec Comp EESA (TARP) 2008 Provisions - Summary revised 11/6/08 - Executive Compensation provisions in Emergency Economic Stabilization Act of 2008 - Limitations on compensation of senior executives of financial institutions that benefit: (i) where Treasury makes direct purchases from the financial institutions of troubled assets - broad executive compensation limits on incentives for top 5 executives to take excessive risk, clawback for financial irregularities and prohibition of golden parachute payments; (ii) where $300 million of financial institution’s troubled assets purchased in auction - no new golden parachutes; and (iii) additional restrictions where troubled assets in excess of $300 million are acquired by auction [has not been relevant to date]. Exec Comp provisions in Extenders and Alternative Minimum Tax Relief Act of 2008 - taxation of deferred compensation from certain tax-indifferent entities under IRC § 457A. (word doc)
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- Memo re Notice 2008-113 - Correction Procedures for 409A - EB/EC 2/28/09 summary of Notice 2008-113, which provides relief from Code § 409A operational failures by providing certain methods for correcting such failures, provided the corrections are made in the year of failure or in certain cases in the first or second year following the year of failure. These are self-correction methods and do not require individual IRS approval. The notice also provides transitional relief for certain operational failures occurring before 2008. ( word doc )
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- Memo - Prop Regs Re Calc of Amounts Taxed Under 409A; Notice re Info Reporting and Withholding - EB/EC 1/6/09 summary of Dec. ’08 proposed regulations regarding calculation of amounts includible in income and additional 20% tax under 409A (§ 1.409a-4), which covers: (i) amounts includible in income for year of 409A failure; (ii) included in taxable year of failure based on amount deferred and vested at end of year; (iii) amounts nonvested for full year(s) of violation escape immediate taxation; (iv) general definition of total amount deferred – present value of future payments (for non-account balance plans); (v) where amount is not knowable at end of year; (vi) alternative times or forms of payment; (vii) payment triggers; (viii) amounts that may qualify as short-term deferrals; (ix) definition of total amount deferred for non-account balance plans; (x) anti-abuse provision; (xi) additional 20% tax; (xii) premium interest tax; (xiii) payments of deferred compensation in years after year included in income under § 409A; and (xiv) permanent forfeiture of deferred amount previously included in income. Also, Notice 2008-115 (Dec. ’08) dealing with information reporting and withholding for deferred compensation plans under § 409A, and extending the transition period of earlier IRS notices during which § 409A compliant plans need not provide information reporting to after the above regulations are finalized. (word doc)
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- Memo - Correcting 409A Document Failures Prior to Year of Vesting - The 409A correction program in Notice 2008-113 applies only to operational errors and not to errors in form. Nevertheless, under proposed § 1.409A-4 regulations 409A document failures that are isolated and unintended can generally be amended prior to the year the participant vests in the deferred compensation. This can be a very useful method of correction.
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- Code § 409A Outline - CCS detailed outline of Code § 409A and regs issued 4/07, which impose new rules on nonqualified deferred compensation arrangements. All arrangements that are subject to the new rules had to be in full compliance by Dec. 31, 2008. Outline discusses the types of arrangements that are potentially subject to § 409A and the requirements that must be satisfied in order to be in full compliance with the Final Regulations. See Journal of Deferred Compensation, Winter 2009-2010; Tax Management Compensation Planning Journal (Sept. 5, 2008)
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- Outline of S-K Exec Comp Disclosure Rules - CCS outline (last updated 1/4/2010) of Final executive compensation disclosure rules adopted 7/26/06 - SEC Release 33-8732A, Executive Compensation and Related Person Disclosure, (Sept. 8, 2006), as amended 12/29/2006 and 12/23/2009 - amends 1992 Item 402 of S-K Rules, with CD&A, summary comp table, grants of plan-based awards table, outstanding equity awards at fiscal year-end table, option exercise and stock vested table, pension benefits table, nonqualified defined contribution and other deferred compensation plans table, potential payments upon termination or change of control, director compensation table, etc. (word doc)
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