Monday, July 27, 2009

Backdating Returns to Spotlight; IRS GC Memorandum

Link from CFO Magazine

"The IRS legal memorandum, AM 2009-006, released on July 6, 2009, addresses the issue of whether the compensation emanating from these discounted options constitutes "qualified performance based compensation." The answer is an unequivocal no...

Whether a stock option satisfies the requirements of Regulation Section 1.162-27(e)(2)(vi)(A) is determined as of the date of grant of the option. The regulations do not provide a mechanism to retroactively reprice an option to transform compensation resulting from the exercise of the option into performance based compensation. Because the compensation arising from the option grants in this case was not based solely on an increase in the price of the stock after the grant date, none of the compensation attributable to the options in question was qualified performance based compensation."

Link to IRS GC Memo

Wednesday, July 15, 2009

Is it Still Possible to Fix Unvested Arrangements?

Article suggests that it is not too late to fix arrangements if they are not yet vested.

Link From ComplianceWeek

"In most cases, an employer with a plan document failure can only report the violation, fix the problem so that it doesn’t affect any future deferrals, and possibly make a tax gross-up payment to an employee who gets hit with the tax, penalty, and interest for a violation. However, the authors note that employers may have a limited opportunity to correct errors for certain types of non-compliant plans that impose vesting conditions, such as severance arrangements."

Wednesday, July 1, 2009

Law Article Discusses 409A

Article by Joy Mullane of Villanova Law Review Article discusses regulation of Executive Compensation through the tax code, including 409A.

"Section 409A was also enacted in response to popular sentiment. The public was in an uproar over Enron’s pay practices in general and its deferred compensation practices in particular. Enron’s deferred compensation practices allowed executives to access their retirement plans and deplete Enron’s assets while rank-and-file employees were locked out of accessing their retirement plans. In response, Congress enacted section 409A to discourage companies from establishing nonqualified deferred compensation plans that would allow an executive to have a significant degree of control over amounts deferred. While it is too early to make any certain claims regarding section 409A, prior experience suggests that it will share the experience of its predecessors and thus do little to prevent executives from finding a way around the rules to whatever end they desire, or else their employers will pay any imposed penalties."