Proxy advisors (e.g., Institutional Shareholder Services (“ISS”) and Glass, Lewis & Co (“Glass Lewis”)) have played a substantial role in the design of executive compensation for many years. This has been due to the strong reliance of institutional investors (as well as investment advisors) on the proxy voting recommendations of firms such as ISS and Glass Lewis. Some commentators have viewed the proxy advisors as being quasi-regulators without any formal oversight of their potential conflicts…
Now that we have had a couple of weeks to digest the IRS’s guidance in Notice 2018-68 on the Tax Cuts and Jobs Act’s (TCJA’s) amendments to Code Section 162(m), it’s a good time to take a closer look at the “grandfathering” rule. As a reminder, the TCJA (i) eliminated the “performance-based compensation” exception to Section 162(m)’s $1 million limit on the deductibility of covered employee compensation, (ii) expanded and made permanent the group of…
Last week, the IRS issued Notice 2018-68 containing initial guidance on the amendments to section 162(m) made by the Tax Cuts and Jobs Act (“TCJA”), including the transitional relief for written binding contracts. On balance, the guidance is not particularly favorable to taxpayers, as it takes a narrow view of the grandfathering relief for arrangements in effect under prior law, particularly for arrangements with negative discretion, and a broad view of the new group of…
The Financial Accounting Standards Board (FASB) recently approved the decision to apply ASC 718 — the accounting treatment that applies to equity awards granted to employees (and non-employee directors) — to equity awards granted to consultants and other individuals who are not employees. Applying ASC 718 to Non-Employees Previously, ASC 505-50 applied to equity awards that were granted to non employees. Under ASC 505-50, the vesting date — rather than the grant date — is…
We have been following the progress of a number of plaintiff shareholder suits alleging Exchange Act Section 16(b) short swing profits based on “discretionary” share withholding on equity awards. Just under a year ago we were happy to report the first district court dismissal of one of these claims, although that case is currently on appeal to the Fifth Circuit. On January 26, 2018, a second such claim was thrown out via summary judgment, this…
On January 11, 2018, the IRS issued Notice 1036, which provides the percentage method tables for income tax withholding in 2018. Key developments include: The flat withholding rate on supplemental wages, such as equity awards, of $1 million dollars and under a year is now 22% – down from 25%. As anticipated, the mandatory supplemental withholding rate for compensation in excess of $1 million is now 37% – down from 39.6%. The backup withholding rate…
On December 13, 2017, the Delaware Supreme Court in In re Investors Bancorp, Inc. Stockholder Litigation issued a decision having significant ramifications on director compensation. The case increases the risk of plaintiff stockholder claims against directors based on a breach of fiduciary duties where directors grant themselves equity awards pursuant to a plan providing the directors with general discretion to determine the amount, terms, and conditions of the awards – even if the plan includes a stockholder-approved limit in the plan on the size of the awards that may be granted to directors.
As of December 20, 2017, both the House of Representatives and the Senate have voted to approve the final version of the Tax Cuts and Jobs Act, in substantially the form released by the Conference Committee on December 15th. The bill is expected to be presented to the President for signature before Christmas, making US tax reform a reality for 2018.
U.S. tax reform continues to move through the Halls of Congress at a brisk pace. Yesterday the House approved the bill proposed by the House Ways and Means Committee. For a discussion of the compensation-related provisions of the House bill, please refer to our alert dated November 13, 2017. The current draft of the conceptual mark-up under review by the Senate Finance Committee (the “Senate Mark”) has been amended in a way that generally aligns…
If you have been following the progress of U.S. tax reform, you will know that one of the most significant proposed changes in the compensation arena is currently up in the air, with a conflict between the final bill approved last week by the House Ways and Means Committee and the conceptual mark-up now under review by the Senate Finance Committee (the “Senate Mark”). Specifically, the final House bill eliminated proposed changes that would have…