Archives: Executive Compensation (US)

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Learning to Live with Clawbacks: The New, Long String on Executive Compensation

Existing rules in Europe require, and proposed rules in the U.S. would require, companies and financial institutions to have in place effective clawback policies.  Under such policies, employers have the ability to recover compensation paid to employees when certain events occur or information comes to light that could have an adverse effect on the employer. … Continue Reading

SEC’s New Pay Ratio Disclosure Rule Explained

On August 5, 2015, the Securities and Exchange Commission adopted, by a three-to-two vote, a rule that will require most public companies to disclose, annually, the ratio of the median of the annual total compensation of the company’s employees to the annual total compensation of the company’s principal executive officer. Companies must comply with the … Continue Reading

Time to Focus on Directors’ Pay?

Although executive compensation has been under significant scrutiny for many years, directors’ compensation has flown somewhat under the radar. That may be about to change: in Calma v. Templeton, a Delaware court recently held that the level of compensation granted to non-employee directors should be reviewed under the “entire fairness” standard rather than under the … Continue Reading

SEC Proposes Clawback Rule

The Securities and Exchange Commission has proposed a rule that will require companies with listed securities to recover incentive compensation based on erroneous financial statements. The proposed rule will also require new disclosures concerning listed companies’ clawback policies and their efforts to recover incentive compensation pursuant to the policies. The proposed rule and a fact … Continue Reading

Foreign Compensation and the Long Reach of Code Section 409A

As business becomes increasingly globalized, multinational corporations are sending more executives on international assignments and hiring more expatriates to fill local positions overseas.  Compensation connected to these employment patterns can create a series of legal and regulatory challenges.  For example, unless an exception applies, U.S. citizens and U.S. residents are subject to U.S. federal income … Continue Reading

SEC Proposes “Pay for Performance” Disclosure Rule

By David Engvall, Reid Hooper, Keir Gumbs, and David Martin On April 29, 2015, the Securities and Exchange Commission (the “SEC”) proposed a new rule that would require public companies to provide new disclosures annually regarding the relationship, over a five-year period, between executive compensation actually paid and a measure of financial performance of the … Continue Reading

SEC Hedging Disclosure Proposal Could Cause Companies To Review Trading Policies

On February 9, 2015 the SEC proposed rules, as required by Section 955 of Dodd-Frank, that would require disclosure regarding whether directors, officers and other employees are permitted to hedge or offset any decrease in the market value of equity securities granted by the company as compensation or held, directly or indirectly, by employees or … Continue Reading

Employers Might Be Liable to Nonqualified Plan Participants for Failing to Follow FICA’s Special Timing Rule

Employers should consider reviewing their procedures for withholding and paying FICA tax in light of the recent district court decision in Davidson v. Henkel Corp.  The court concluded that the employer was liable to participants in a nonqualified deferred compensation plan for failing to withhold FICA tax in a manner that would have decreased their … Continue Reading

New Medicare Tax Makes FICA Errors Harder to Correct

Withholding and paying FICA tax on nonqualified deferred compensation can be a tricky business.  Because special timing rules apply to FICA tax, employers can’t simply withhold and pay FICA tax when they pay deferred compensation to the employee.  Instead, FICA tax is due when the deferred compensation vests (or, in some cases, when the amount … Continue Reading

IRS Issues Guidance on New Medicare Taxes for High-Income Employees

The Affordable Care Act created two new taxes for individuals whose income exceeds $200,000 ($250,000 for married couples filing joint returns).  Employees must pay an additional 0.9% Medicare tax on wages in excess of these dollar thresholds.  Individuals whose adjusted gross income exceeds the dollar thresholds also must pay a 3.8% tax on their net … Continue Reading

SEC Proposes Pay Ratio Disclosure Rule

On September 18, 2013, the Securities and Exchange Commission (“SEC”) proposed a rule that would require most public companies to disclose, annually, the ratio of the median of the annual total compensation of all of the company’s employees to the annual total compensation of the company’s principal executive officer. This rule is mandated by Section … Continue Reading

Supreme Court’s DOMA Decision Has Significant Implications for Employers and Employee Benefit Plans

Earlier today in United States v. Windsor, the Supreme Court struck down section 3 of the federal Defense of Marriage Act (“DOMA”).  Section 3 of DOMA limits the definition of marriage for purposes of federal law to marriage between individuals of the opposite sex.   The Court held that DOMA deprives same sex couples of due … Continue Reading

Why Is a Benefits Lawyer Talking about Trade Secret Theft?

At a recent forum in New York, a team of Covington & Burling LLP lawyers addressed the growing concern among companies that their most valuable assets might just walk out the front door on a thumb drive in an employee’s pocket or otherwise be taken by company insiders.  Although much of the discussion in this … Continue Reading

Something to Watch This Proxy Season: Next Generation Executive Compensation Lawsuits

As recently reported in a Wall Street Journal article, plaintiffs’ lawyers hatched a new generation of executive compensation lawsuits in 2012, which are expected to be rolled out again in 2013.  These lawsuits are distinct from the first generation of “say-on-pay” lawsuits in 2011, which generally were filed against companies following shareholder meetings based on … Continue Reading

SEC Approves NYSE and NASDAQ Independence Standards for Compensation Committees

The Securities and Exchange Commission (SEC) recently approved changes to the listing standards of the New York Stock Exchange (NYSE) and NASDAQ relating to the independence of compensation committee members and the responsibilities of compensation committees when selecting compensation consultants, legal counsel, and other advisers. The final listing standards are substantially the same as those … Continue Reading

Statutory Stock Options: We Have To Report What? And When?

Employers are deluged with annual reporting requirements for their compensation and benefit plans.  One requirement that often flies under the radar is the obligation to furnish and file Form 3921 for exercises of incentive stock options (“ISOs”) and Form 3922 for certain shares purchased under an employee stock purchase plan (“ESPP”).  The deadline for furnishing … Continue Reading

2013 Preview of Expected Developments in Employee Benefits and Executive Compensation

In the coming year, we expect to see continued activity on the part of the agencies and Congress with respect to employee benefits and executive compensation.  The following is a preview of major guidance anticipated in 2013. … Continue Reading

Accelerating Compensation into 2012 to Avoid 2013 Tax Increases

If widespread news reports are any indication, many people—employers and employees alike—are thinking about increased taxes in 2013 and what can be done to minimize their impact. Some tax increases in 2013 are a sure thing.  For example, the employee share of Medicare taxes will increase to 2.35% for wages in excess of $250,000 (for … Continue Reading

ISS and Glass Lewis Release 2013 Policy Updates

Institutional Shareholder Services Inc. (“ISS”) and Glass Lewis & Co., LLC (“Glass Lewis”) recently updated their proxy voting guidelines for the 2013 proxy season.  The complete 2013 Updates to ISS’s U.S. Corporate Governance Policy are available here.  Key updates from both proxy advisors relating to executive compensation and compensation-related matters are discussed below.  While the … Continue Reading

Independence Standards for Compensation Committees Proposed by NYSE and Nasdaq

The New York Stock Exchange (NYSE) and Nasdaq recently filed proposals with the SEC setting forth standards to determine the independence of (a) a member of a compensation committee, and (b) a compensation consultant, legal counsel, or other advisor to a compensation committee.  The exchanges’ proposals generally follow Rule 10C-1, which the SEC adopted in … Continue Reading
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