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Category Archives: Executive Compensation

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Supreme Court unanimously holds that severance payments generally are subject to FICA taxes

Posted in Executive Compensation, Tax Issues

Clients frequently ask us if severance payments are subject to tax withholding. The answer is that they clearly are subject to income tax withholding, but there has always been some ambiguity about the circumstances in which they are subject to FICA tax withholding. The IRS has always taken the position that severance payments are not subject to FICA tax withholding only when the severance payments are tied to the receipt of unemployment benefits. When the issue arose in litigation, however, the Circuits were split as to whether to side with the IRS, or whether a somewhat broader FICA exception should …


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Tax-Exempt Organizations: understanding the proposed Tax Reform Act of 2014’s penalties on excessive executive compensation

Posted in Executive Compensation, Other Articles, Tax-Exempt/Governmental Employers

Recently, we published an article in Bloomberg BNA’s Pension & Benefits DailyTM that provides context for understanding the proposed Tax Reform Act of 2014’s penalties on excessive executive compensation for tax-exempt organizations and offers our thoughts about planning opportunities for the future. This is available for our readers at this link.…


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What to Do About Employee Benefits When The Company is Headed Towards Insolvency

Posted in Executive Compensation, Fringe Benefits, Retirement Plans

If you are a board member or senior executive of a company that is rapidly failing, what do you about employee benefits? No one has ever liked my answer: freeze the benefits. This is counterintuitive advice for someone who is trying to keep the company afloat, and who would be personally affected by the loss of benefits. But let me explain why this is so important, using a complaint that was recently filed by the DOL, and the facts as they were alleged.

In January 2010, Home Valu ceased operations due to financial difficulties. Creditors then filed an involuntary petition …


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SEC Proposes CEO Pay Ratio Rule

Posted in Executive Compensation

On our companion blog — Federal Securities Law BlogAndrew Trafford describes the Securities and Exchange Commission’s recently proposed CEO pay ratio rule.  This rule comes from Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  In a nutshell, this rule generally requires public companies to disclose in their proxy statements the ratio of the compensation (as defined in Item 402(c)(2)(x) of Regulation S-K) of the median-compensated employee in the company to the compensation of the company’s CEO.

As Andy points out in his blog, many public companies were concerned about the methods and techniques the …


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Accelerating Incentive Pay From 2013 to 2012 — Executive Compensation Planning for the Fiscal Cliff

Posted in Executive Compensation, Fringe Benefits, Other Articles

Because of the pending fiscal cliff and the possibility of higher tax rates coming in 2013, we have been asked if private company employers should accelerate payments of incentive compensation into 2012, rather than pay them in 2013. This strategy may sound tempting to executives given all of the headlines of the fiscal cliff and potentially higher tax rates on high-wage earners. Still, a lot can happen between now and December 31st. To determine the appropriate tax planning strategy, employers should take the following steps.

  1. Have a Discussion With Key Executives. Your key executives are probably concerned about the

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Ohio Supreme Court Partially Reverses its Acordia Non-Compete Decision

Posted in Benefits Issues Related to Mergers and Acquisitions, Executive Compensation

This past May, we reported that the Ohio Supreme Court ruled in Acordia of Ohio, L.L.C. v. Fishel that following a merger, the surviving company may not be able to enforce employees’ non-compete agreements, where the agreements failed to contain an assignment clause, and the time period of the employees’ non-competes began to run as of the date of the merger. The Court reconsidered its decision, and issued a new decision today. Upon quick review, the bottom line seems to be that the Court has decided that it mis-read earlier precedent regarding corporate mergers. Here is part of the


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Code Section 162(m) Guidance Issued Regarding Deductibility of Dividends and Dividend Equivalents in Equity Awards

Posted in Executive Compensation, Fringe Benefits

The IRS recently issued an important ruling on whether dividends and dividend equivalents related to restricted stock and restricted stock units (“RSUs”) can be treated as performance-based compensation for purposes of Code Section 162(m). In Rev. Rul. 2012-19, 2012-28 IRB, the IRS held that such dividends and dividend equivalents would qualify as performance-based compensation, provided that each of them separately satisfy Code Section 162(m)’s performance-based compensation requirements. In contrast, if dividends and dividend equivalents were paid to employees at the same time as dividends on common stock were paid to shareholders, regardless of whether the underlying awards were vested, …


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Ohio Supreme Court Rules On The Enforcement of Non-Compete Agreements By The Surviving Company In A Merger

Posted in Executive Compensation

As discussed in our sister blog – Employer Law Report – the Ohio Supreme Court has ruled in a 4-3 decision that following a merger, the surviving company may not be able to enforce employees’ non-compete agreements where the agreements fail to obtain an assignment clause, and the time period of the employees’ non-competes began to run as of the date of the merger. It is too early to know the reach and impact of this ruling, but we can foresee that the Acordia rationale might be applied in other contexts. Accordingly, if you are involved with due diligence in …


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The Top-Hat Plan Test for Your ERISA Executive Deferred Compensation Plan – Daft v. Advest, Inc.

Posted in ERISA Fiduciary Compliance, ERISA Litigation, Executive Compensation

A recent Sixth Circuit decision provides a tutorial on designing and administering an ERISA executive compensation top-hat plan. In Daft v. Advest, Inc., a U.S. Court of Appeals for the Sixth Circuit reversed the District Court’s decision that the executive compensation plan was an ERISA plan but was not a top-hat plan, on the grounds that the District Court should have remanded the matter to the plan administrator for expansion of the administrative record and its own determination on this issue. This is good news for the employer, and presumably good news for the other plan participants, because an …


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Public Companies Need to Review Equity Compensation Arrangements ASAP

Posted in Executive Compensation

In our recent blog about public equity compensation arrangements, we noted inconsistencies regarding the effective date of new guidance. The IRS and Treasury subsequently corrected the 162(m) guidance, and based upon this correction, we reaffirm that public companies need to review their equity compensation arrangements as soon as possible to minimize potential negative tax ramifications.

Public Companies Granting Stock Options and SARs to Covered Employees

Under existing Treasury regulations, certain equity compensation arrangements are exempt from the $1 million compensation deduction limit under Code Section 162(m), provided that a limit on the awards is stated. It appears that when the …


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Public Companies May Need to Amend Stock Option Plans Soon to Qualify for Exception to $1 Million Compensation Deduction Limit

Posted in Executive Compensation

Publicly traded companies may need to act quickly to review, and, if necessary, amend their stock option and stock appreciation right (“SAR”) plans in order to preserve tax deductions for compensation in excess of $1 million paid to certain executives. The reason for this review is that the Internal Revenue Service (the “IRS”) and the United States Treasury Department recently issued proposed regulations that clarify a few items with respect to the application of Section 162(m) of the Internal Revenue Code (the “Code”) to such plans. One item relates to requirements that stock options and SARs must meet to qualify …


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Have You Done a 409A Review of Your Executive Compensation Arrangements This Year?

Posted in Executive Compensation

Executives are at risk of early income inclusion, a 20% penalty tax, and interest charges if their compensation arrangements violate the evolving guidance under Internal Revenue Code Section 409A, which means that it is important to periodically review these arrangements. If you have not already done so, you should review your executive compensation arrangements in light of the guidance under Notice 2010-80, in which the IRS expanded its explanation of provisions that it deems to violate Section 409A.

The good news is that through this Notice, the IRS has expanded the ability of employers to correct errors in different types …


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