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SEC proposes new proxy reporting rules
With corporate executive compensation practices facing increased public scrutiny, the SEC has responded with new proposed rules on proxy reporting, designed to improve transparency. Here we review the proposed rules and their implications for plan sponsors.
Underwater options – Beyond the theory
In parts one and two of our series, we first gave an overview on the basics of stock options, followed by a look at the pros and cons of repricing stock options. In this, the final part of our series, we look at some of the compliance considerations and issues surrounding the repricing of stock options.
Our stock options are underwater, we might re-price them – Part 2 of a series
Last month, in the first part of our series, we discussed some of the basics of stock options. In part two, we look at the phenomenon of underwater options and some of the pros and cons around repricing them.
IRS releases interim guidance on certain nonqualified deferred compensation programs
Last fall, the Emergency Economic Stabilization Act, also known as the Bailout Bill, became law. Among other things, it closed what some viewed as loophole in Code section 409A by providing for similar tax penalties for tax indifferent parties. In this article, we review the IRS's first guidance under new Code section 457A.
Help! Our stock options are underwater – Part 1 of a new series
In this new article series, we look at the difficulties of using stock options for rewarding employee performance during a bear market. In today's economic climate, most stock options that have been granted to employees in the last few years have little if any value. In this series, we will examine these "underwater" options, looking at the good, the bad and the ugly. We begin with a refresher on the concept of stock options generally in this article.
IRS and Treasury provide relief for certain 409A failures
Under Code section 409A, there are two key types of failures — those that are from a failure to properly document a plan and those that are from a failure to administer the plan according to its terms. For operational failures (a failure to administer the plan according to its terms), all is not lost. In this article, we discuss the new program from the IRS and Treasury that provides for limited relief from operational failures. The key message — act quickly.
IRS and Treasury issue proposed regulations on income inclusion for failure to comply with Code section 409A
As part of its triad of guidance in December, the IRS and Treasury published proposed regulations on income inclusion under Code section 409A. In this article, we discuss this guidance and amplify that failure to comply with 409A will result in significant confiscatory penalties.
IRS and Treasury provide interim reporting and withholding guidance under 409A
The IRS and Treasury released guidance extending the transition period for withholding and reporting under Code section 409A. In this article, we review Notice 2008-115 and its impact for employers.
Lilly Ledbetter Fair Pay Act signed into law
In response to the Supreme Court decision in Ledbetter v. Goodyear, Congress has passed and President Obama has signed into law the Lilly Ledbetter Fair Pay Act of 2009. In this article, we review briefly the act and its implications for employee benefit plans.
Human resources and the 2008 “Bailout Bill”
On October 3, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (EESA), better known as the “Bailout Bill”. While the provisions intended to save certain troubled financial institutions got all the press, EESA had provisions in it that affect human resource programs especially those related to compensation and mental health. In this article, we focus on those human resource programs and the changes that EESA brings to them.
IRS proposes regulations for employee stock purchase plans
Employee stock purchase plans (ESPPs) were added to the Internal Revenue Code by the Revenue Act of 1964. Since then, precious little official guidance has been available on these plans. In fact, the last update of the regulations under section 423 had been made in 1988, prior to the last amendment of section 423 by OBRA 90. In Notice 2004-55, the IRS asked whether the existing regulations should be amended. The IRS received only two comment letters, which may explain the delay by the IRS in proposing new regulations. But, now they have. In this article, we’ll give some very basic background on ESPPs and discuss some of the key points raised in the proposed regulations.
IRS releases proposed reporting requirements for incentive stock options
The IRS published on July 17 proposed regulations providing guidance to assist corporations with the return and information statement requirements related to statutory stock options (incentive stock options under Code section 422 or employee stock purchase plans under Code section 423) under Internal Revenue Code section 6039. Prior to the law change, an employer’s primary reporting responsibility was to the employee. Now, similar information will be required to be provided to the IRS to ensure taxpayer compliance with the associated ordinary income tax and capital gains requirements. In this article, we review the implications of these proposed requirements.
SERP and nonqualified deferred compensation funding – another way
Employers may want to consider a qualified pension plan as a funding vehicle for executive compensation to the extent allowable. In this article, we’re going to explore this potential and discuss why 2008 may be the best year to put more emphasis on your qualified defined benefit plan.
IRS provides more guidance on performance-based compensation under 162(m)
On February 21, 2008, the IRS published Revenue Ruling 2008-13 providing additional Section 162(m) guidance, as well as some relief for certain plans. In this article, we review the guidance and its implications on compensation plans.
EXECUTIVE COMPENSATION LIBRARY JOURNAL REPORTS: LAW AND POLICY 2008 Intelligent Design Under Code §409A
The Internal Revenue Code Section 409A is examined by John H. Lowell, JPMorgan Compensation and Benefit Strategies. Reproduced with permission from Benefits Practice Center, Executive Compensation Library, Journal Reports: Law & Policy, Copyright 2008 by The Bureau of National Affairs, Inc.
IRS Provides Adverse Ruling on $1 Million Pay Cap
We review the private letter ruling (PLR) the IRS published on January 25, 2008, that relates to the $1 million pay cap under Internal Revenue Code (Code) Section 162(m).
Issues Related to SERP Funding
In this article, we’re going to focus on SERP liabilities and consider whether those liabilities should be supported by specific assets, to what extent they should be supported by those assets, and what sort of strategies should be applied to allocating the assets that are supporting those liabilities.
Expected Life Shortcut – the Sun Sets Part of the Way
In December, the SEC staff released Staff Accounting Bulletin No. 110 (SAB 110). For limited circumstances, this extends the availability of the shortcut used in expensing share-based payments under FAS 123.
Treasury and IRS Provide Limited Relief for Operational Failures Under Code Section 409A
This article examines Notice 2007-100 which the Department of Treasury and the IRS published on December 24. Notice 2007-100 provides relief under particular circumstances for certain failures to comply with Internal Revenue Code Section 409A.
PPA Update: Tax Exemption and Reporting Requirements for Employer-Owned Life Insurance
PPA added sections to the IRC regulating tax exemption and reporting requirements for employer-owned life insurance. In this article, we’ll give a bit of background and then focus on the new requirements added by PPA.
Expected Life Shortcut – Will the Sun Really Set?
The SEC's Staff Accounting Bulletin No. 107 is on track to sunset at the end of 2007. Here we review the shortcut and provide commentary on the implications of its sunset, and the associated action that companies should be considering.
IRS and Treasury Provide Limited 409A Relief
In this article, we review the guidance issued by IRS and Treasury in Notice 2007-78, which provides limited transition relief with respect to compliance with Code Section 409A.
409A Final Regulations - Focus on Employee Agreements
On April 10, 2007, final regulations under Internal Revenue Code Section 409A were released, relating to taxation of nonqualified deferred compensation. In this article, we'll focus on 409A-related issues as they impact employment agreements.
Relief for Split-Dollar Life Insurance Arrangements Needing Modification to Comply with 409A
Together with publishing the final regulations under IRC Section 409A, the IRS also published Notice 2007-34, dealing with the application of Section 409A to split-dollar life insurance arrangements. In this article we review the Notice and its impact.
Final Nonqualified Deferred Compensation (409A) Regulations -- Focus on Separation Pay Plans
On April 10, 2007, Treasury released final regulations under Internal Revenue Code (IRC) Section 409A. In this article, we'll focus on the rules as they pertain to separation pay plans.
Final Nonqualified Deferred Compensation (409A) Regulations -- Focus on SERPs
On April 10, 2007, Treasury released final regulations under Internal Revenue Code (IRC) Section 409A, relating to the taxation of nonqualified deferred compensation. In this article we focus on the application of these new rules to retirement plans.
Proxy Disclosure of Performance-Based Equity Awards
The SEC released a change in the proxy disclosure rules -disclosure of the compensation cost for equity awards will be over the requisite service period using FAS 123R compensation cost for the fiscal year. Here we examine the implications of this change.
Senate Finance Committee Passes More Restrictions on Deferred Compensation
On January 17, the Senate Finance Committee passed the Small Business and Work Opportunity Act of 2007 (SBWOTA). Here we examine the components of the bill dealing with nonqualified deferred compensation and excessive employee renumeration.
IRS Releases Announcement 2007-18
On February 8, the Internal Revenue Service (IRS) released Announcement 2007-18. In this article we will review the langauge of the announcement, along with examining the implications of it.
Treasury Issues Updated 409A Guidance
The Treasury Department recently issued updated guidance on withholding and wage reporting requirements for 2005 and 2006 under Internal Revenue Code Section 409A. Here we look at this guidance and explain its implications.
SEC Changes Proxy Disclosure of Equity Compensation
Here, we explore the implications of the alteration made by the SEC in its proxy disclosure rules. Disclosure of compensation cost of equity awards will now be over the requisite service period using FAS 123R compensation cost for the fiscal year.
Equity Compensation Design: Market-Based Restricted Stock
In this article, we discuss the new SEC proxy disclosure requirements related to equity compensation.
Equity Compensation Disclosure Under the New Proxy Rules
In this article, we discuss the new SEC proxy disclosure requirements related to equity compensation.
Executive Compensation Disclosure Under the New Proxy Rules
In this article, we discuss the new SEC proxy disclosure requirements that revise the Summary Compensation Table and associated disclosures. We'll also highlight the tabular disclosure of director compensation.
Post-Employment Benefits in the New World of Proxy Disclosure
In this article, we discuss the new (more robust) SEC proxy disclosure requirements related to retirement and other post-employment benefits.
PPA 2006 -- Executive Compensation Provisions
The Pension Protection Act addressed not only qualified retirement plans, but the funding of nonqualified plans as well. In this article, we address the potential consequences of some of those funding decisions, after the passage of PPA.
SEC to Revamp Disclosure of Executive Compensation
In January, the SEC voted unanimously to propose rules regarding disclosure of executive and director compensation. Here we discuss these rules, their effect on proxies and steps that registrants should take to plan for the 2007 proxy season.
SEC to Propose Proxy Rules -- Disclosure of Compensation to be Enhanced
The SEC voted unanimously to publish for comment proposed rules to amend disclosure requirements for executive compensation. Here we review the proposed rules and their implications.
FAS 123R Valuation: Considering Historical Life in Developing Expected Life
It is now more important than ever to develop stock option behavior assumptions rigorously and accurately in order to reasonably determine the fair value of options. Here we review how to set one such assumption - expected life.
The APIC Pool Shortcut: A Review of FSP 123-3
Companies have one year from the earlier of their 123R adoption date or the issuance of the final staff position (11/10/2005) to make the one-time election of their APIC Pool method. This article is a compilation of the questions that have been raised.
Countdown to Implementation: FAS 123R Preparation on a Tight Timeframe
With the date of adoption for FAS 123R quickly approaching, companies with calendar year plans are left with just a few weeks to work through various strategic and tactical decisions. Here we offer steps to help streamline the transition process.
Lattice Models: Understanding the Modeling Exercise Behaviors in a Binomial Model
In this article, we continue our discussion of lattice models to show how employee exercise behaviors can be modeled directly within a lattice model and incorporated into stock option valuations.
Lattice Models: Why and When to Use Them
This closer look at Lattice Models overviews the arguments for them in FAS 123 valuation, their limitations, and explanations of binomial, trinomial and Hull-White models.
Determining FAS 123R Expense: Straight-Line vs. Accelerated Attribution
Determining the fair value is a process that has been receiving the most attention, but once we have the fair value, how do we determine expense?
Demystifying Volatility, Part 2 -- Implied Volatility
A deeper dig into implied volatility and its applications to stock-based compensation valuation, including an explanation of the "volatility smile."
Demystifying Volatility
With FAS 123R preparations in full swing, we take a closer look at one of the most influential assumptions in stock option valuation.
Models for FAS 123(R): Lattice vs. Black-Scholes
While Black-Scholes has proven to be effective in valuing exchange-traded options, the unique features of employee stock options support the use of the lattice model.
SEC Staff Issues Guidance On Compliance With Option Expensing Rules
The SEC Staff's recent Accounting Bulletin outlines their position on valuation issues, including appropriate valuation models and assumptions.
FAS 123(R): Expensing Stock Options
With June 15 rapidly approaching, employers should begin exploring different valuation options and models, design considerations and transitional issues.
Nonqualified Deferred Compensation: A Primer
This article is intended as only a primer - a high level summary to help form the spaces for the details to then begin to find a home.
FAS 123(R) - Compliance Timeline
Employers that provide any share-based payments to employees may find this timeline helpful in meeting key compliance deadlines.
FAS 123(R) - Frequently Asked Questions
Is there a preference of one valuation model over another? What variables should be considered when determining the fair value? What are the income tax implications of the new standard? We answer these questions and more.
Deferred Compensation Reform Guidance
The Department of Treasury has issued preliminary guidance on the application of new rules on the taxation of deferred compensation under Tax Code section 409A. In this article we review that guidance, with a focus on its application to SERPs.
Expensing Stock-Based Compensation: New Effective Date For Public Companies
The FASB has granted public companies a six-month extension to expense stock options.
Lattice vs. Black-Scholes - Which Model Should Be Used?
As of yet, the FASB has not determined its preferred model for determining the fair value of stock options.
Current Legislative Outlook, October 2004: Congress Passes Revision Of Deferred Compensation Rules
Recently passed legislation fundamentally revises the rules for the taxation of deferred compensation. This article reviews the new legislation, highlighting areas of concern and the resolution of differences between the House and Senate bill.
Congress Considering Revision Of Deferred Compensation Rules
Congress is currently considering international tax legislation that includes a revision of the rules for the taxation of deferred compensation. This article reviews the core provisions of this legislation.