Equity and Executive Compensation

CAUTION: Ten Common 409A Errors!

The IRS continues to provide both formal and informal guidance on the application of Internal Revenue Code Section 409A (“Section 409A”). Failure to comply with Section 409A creates serious and expensive tax issues. Below is a list of some common Section 409A errors. Substitution Payments When an executive is terminated, a company may seek to […]

Updating Compensation Committee Responsibilities and Charter for Shareholder Advisory Votes on Executive Compensation and Golden Parachute Payments

Now that the Securities and Exchange Commission (the “SEC”) has issued final rules implementing the shareholder advisory voting provisions under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), it is a good time to consider how your company will allocate responsibilities between the board of directors, the compensation committee and management […]

IRS Issues Voluntary Correction Program for Section 409A Plan Document Failures: Time to Find and Fix Problems during IRS Transition Relief Period

On January 5, 2010, the IRS issued a document correction program (“Notice 2010–6” or “Document Correction Program”) for nonqualified deferred compensation (“NQDC”) plans subject to Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”). Previously, in Notice 2008–113 the IRS had provided correction procedures solely for unintentional operational errors under NQDC […]

Federal Reserve Sheds Light on How to Evaluate and Manage Risk in Incentive Compensation Policies

The Board of Governors of the Federal Reserve System has recently issued Proposed Guidance on Sound Incentive Compensation (“Proposed Guidance”). While the Federal Reserve’s Proposed Guidance is generally consistent with the principles in the other government initiatives regarding risk management and corporate governance of incentive compensation, the Proposed Guidance is more comprehensive and provides detailed […]

Severance Plans — Regulated by the Internal Revenue Code and ERISA

Introduction Many companies have implemented severance plans due to the current economic situation. While companies typically consider the employment law implications of severance plans (such as the Age Discrimination in Employment Act), many have not considered how these plans are governed by the Internal Revenue Code of 1986, as amended (the “Code”) and the Employee […]

Executive Compensation In 2009

This newsletter provides an overview of the following seven areas of executive compensation: Applicable to Most Employers The IRS correction program for certain operational violations of Internal Revenue Code section 409A (“Section 409A”). Reporting obligations for incentive stock options (including ESPP grants) that must be made by January 31. The U.S. Department of Labor Top-Hat […]

IRS Publishes Guidance on 2007 Tax Reporting and Withholding Requirements under Code Section 409A

On October 23, 2007, the IRS issued Notice 2007–89 (the “Notice”), which provides guidance related to the reporting and wage withholding requirements for non-qualified deferred compensation arrangements under Section 409A of the Internal Revenue Code of 1986 (the “Code”), as amended. The Notice provides similar information to that provided in Notice 2006–100, which included guidance […]

Special Alert — It’s the Thought that Counts: Limited Transition Relief and Additional Guidance Under 409A

On September 10, 2007, the Treasury Department and IRS issued Notice 2007–78 (the “Notice”), which provides transition relief and additional guidance on the application of Internal Revenue Code section 409A and the related regulations (“Section 409A”) to nonqualified deferred compensation plans. Transition Relief Background Section 409A generally applies to amounts deferred under a nonqualified deferred […]

Legislative Curtailment of Non-qualified Deferred Compensation Imminent?

Both the Senate and the House have recently passed bills that would increase the federal minimum wage. However, the Senate bill also contains provisions that would have a significant impact on executive compensation, which are not contained in the House bill. Legislative History On February 1, 2007, the Senate passed the Small Business and Work […]

IRS Publishes Guidance on Reporting and Withholding Requirements under Code Section 409A

On November 30, 2006, the IRS issued Notice 2006–100 (the “Notice”). The Notice provides guidance related to reporting and wage withholding requirements for non-qualified deferred compensation arrangements under Section 409A of the Internal Revenue Code (the “Code”). The reporting and wage withholding requirements are for calendar years 2005 and 2006 and apply to deferred compensation […]

New Executive Compensation Disclosure Rules

In August, the Securities and Exchange Commission (“SEC”) issued final rules relating to disclosure requirements for executive compensation. The rules apply to disclosure in proxy statements and other filings required by the Securities Exchange Act of 1934. In addition to extensive disclosure, the new rules require that a single total compensation figure be provided for […]

Criminal and Civil Charges Brought in Stock Option “Backdating” Scheme — The SEC and DOJ Get Serious!

On July 20, 2006, the Department of Justice and the Securities Exchange Commission filed criminal and civil charges against former executives of Brocade Communications Systems, Inc., one of the more than eighty companies currently under investigation for backdating stock options. One of the executives charged in the Brocade litigation is the former vice president of […]

Proposed Executive Compensation Proxy Disclosure Rules: What to Do Before the Rules Become Final

On January 27, 2006, the Securities and Exchange Commission (SEC) released proposed rules regarding the disclosure requirements for executive and director compensation in annual proxy statements filed by public companies. The proposed rules would require public companies to revamp the way in which they report executive and director compensation each year in the proxy, and […]

Severance Plans: The New Non-qualified Deferred Compensation

On September 29, 2005, Treasury and the IRS issued proposed regulations on deferred compensation under Section 409A of the Internal Revenue Code. Section 409A governs arrangements that provide deferred compensation to employees, including severance plans (referred to in the proposed regulations as “separation pay arrangements”). However, the proposed regulations exempt certain types of severance plans […]

Non-qualified Deferred Compensation Reporting Requirements Delayed

Effective for calendar year 2005, the IRS has suspended the rules requiring companies to report amounts deferred or accrued under nonqualified deferred compensation plans on Forms W–2 and 1099–MISC. New rules under Internal Revenue Code sections 6041 and 6051 (which were enacted as part of the American Jobs Creation Act of 2004) require that companies […]

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