On August 7, 2015, France?ÇÖs ?Ç£Law on Growth and Economic Activity?Ç¥ (also known as the ?Ç£Macron Law?Ç¥) was enacted, effective as of the same date. Among other changes, the Macron Law revised certain aspects of the tax and legal regime applicable to French-qualified restricted stock units (?Ç£RSUs?Ç¥) by decreasing the applicable employer social tax percentage (payable under the new regime at vesting), reducing the minimum vesting period from two years to one year, reducing the acquisition and sale restriction periods, and providing for more favorable employee tax treatment. Importantly, the Macron Law provides that qualified RSUs can be granted under the new regime only if pursuant to an equity plan that is approved by shareholders after the August 7, 2015, effective date. It remains uncertain whether the new regime could apply to RSUs granted under a sub-plan to a shareholder-approved plan if the sub-plan is adopted by a company?ÇÖs board… Continue Reading
The U.S. Securities and Exchange Commission (the “SEC“) adopted its much-anticipated final rule under Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule requires a public company to disclose (1) the median of the annual total compensation of all its employees, except its chief executive officer (“CEO“); (2) the annual total compensation of its CEO; and (3) the ratio of the compensation of its CEO to the median compensation of its employees. Under the rule, a company would only be required to calculate median employee compensation once every three years and generally must include all employees, including part-time, seasonal, and non-U.S. employees. Although the company may choose among methods for calculating compensation, it must disclose the method it uses and must use the same method for calculating both CEO and employee compensation. The rule is effective for the first fiscal year beginning on or after… Continue Reading
Several changes to the Australian employee share scheme tax rules became effective July 1, 2015. As enacted, the new rules reverse certain rule changes made in 2009 and provide for (i) deferring taxation of options until the time of exercise, rather than upon vesting; (ii) extending the maximum tax deferral period from seven years to 15 years from the acquisition date of a share right; and (iii) increasing the maximum share ownership limit used to determine eligibility for tax deferrals on share rights from five percent to 10 percent. In addition, the new rules provide certain tax concessions for employees of small start-up companies. Additional information on the new tax rules is available on the Australian Taxation Office?ÇÖs website here.
As required by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the U.S. Securities and Exchange Commission (the ?Ç£SEC?Ç¥) recently proposed rules directing national securities exchanges and associations to establish listing standards requiring companies to adopt clawback policies. Under the proposed rules, companies would be required to develop policies that, in the event of an accounting restatement, recoup from certain current and former executive officers incentive-based compensation they would not have received based on the restatement, regardless of fault (i.e., no misconduct required). Such clawbacks would apply to excess incentive-based compensation that is tied to accounting-related metrics, stock price, or total shareholder return (with such excess determined based on an estimate of the effects on stock price or shareholder return if correct financial statements had been issued) and would apply to excess compensation received within a three-year look-back period. Companies would have discretion, however, not to… Continue Reading
In 2013, the U.S. Securities and Exchange Commission (the ?Ç£SEC?Ç¥) issued proposed rules implementing Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires publicly traded companies to disclose (a) the median of the annual total compensation of all employees of the company other than the chief executive officer, (b) the annual total compensation of the company?ÇÖs chief executive officer, and (c) the ratio of (a) to (b) (the ?Ç£Pay Ratio?Ç¥). The Pay Ratio disclosure would be required in any annual report, proxy statement, or registration statement that requires executive compensation disclosure pursuant to Item 402 of Regulation S-K. In response to comments received with respect to the Pay-Ratio proposed rules, the SEC?ÇÖs Division of Economic and Risk Analysis (?Ç£DERA?Ç¥) published an analysis on June 4, 2015, which considers the potential effects on the Pay Ratio of excluding different percentages of certain categories of employees, such… Continue Reading
On April 29, 2015, the U.S. Securities and Exchange Commission (the “SEC“) voted to propose rules under Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requiring companies to disclose the relationship between executive compensation actually paid and the financial performance of the company. ?áThis new “pay-for-performance” disclosure (the “Disclosure“) would include information for the company and peer group companies set out in a table that is incorporated into the proxy or other information statements in which executive compensation disclosure is required. ?áThe Disclosure would present (a) executive compensation actually paid for the principal executive officer (i.e., the total compensation as disclosed in the proxy statement’s summary compensation table (the “SCT“), with adjustments for pension and equity award amounts); (b) the average compensation actually paid to the remaining named executive officers identified in the SCT; and (c) the total annual shareholder return of the company and its… Continue Reading
The IRS recently issued final regulations regarding the deduction limitation for certain employee compensation in excess of $1 million under the Internal Revenue Code. Proposed regulations were issued on June 24, 2011. The final regulations generally adopt the proposed regulations with some modifications. Code Section 162(m) generally imposes a deduction limit of $1 million on compensation paid by a publicly held corporation during any tax year to a “covered employee,” which generally includes the CEO and the three highest paid officers other than the CEO and CFO. However, the deduction limitation does not apply to qualified “performance-based compensation,” including stock options and stock appreciation rights (“SARs“). The final regulations clarify that for stock options and SARs to qualify for the exception, the requirement to specify the per-employee limitation in the plan is satisfied if the plan specifies an aggregate maximum number of shares with respect to which stock options, SARs,… Continue Reading
Institutional Shareholder Services (“ISS“) has issued its U.S. Equity Plan Scorecard (“EPSC“) frequently asked questions for 2015, effective for meetings on or after February 1, 2015. For the 2015 proxy season, ISS intends to take a “more nuanced consideration of equity incentive programs” instead of applying a rigid pass/fail methodology, that will consider a range of positive and negative factors based on three “pillars” of plan cost, plan features, and grant practices. However, the new methodology will continue to result in “Against” recommendations for plan proposals that feature certain “egregious characteristics” (such as authority to reprice stock options without shareholder approval, single trigger change of control vesting, and tax gross-ups). Proposals related to the adoption or amendment of stock option plans, restricted stock plans, omnibus stock plans, and stock appreciation rights plans (stock-settled) will be evaluated under the EPSC policy. A copy of the FAQs may be found here.
Reminder: 162(m) Performance-Based Compensation Plans Must be Re-Approved by Shareholders Every Five Years
As another proxy season gets underway, public corporations should consider whether their performance-based equity or incentive compensation plans should be submitted for shareholder approval at the corporation?ÇÖs next annual meeting. Generally, Code Section 162(m) requires a plan?ÇÖs performance goals to be disclosed to and approved by the corporation?ÇÖs shareholders at least every five years in order for performance-based awards granted under the plan to be exempt from Code Section 162(m)?ÇÖs deduction limits on executive compensation. Plans that were last submitted for shareholder approval in 2010 should be included in this year?ÇÖs proxy statement and submitted for re-approval by the corporation?ÇÖs shareholders.
In the case of Exxon Mobil Corp. v. Drennen, the Texas Supreme Court held that New York law could be applied to determine the enforceability of a forfeiture provision contained in an executive compensation agreement between a Texas-based corporation and a Texas employee. A vice president of ExxonMobil had received restricted stock under an incentive plan, which included a New York choice of law provision. After he took a position with a competitor, ExxonMobil cancelled all of his outstanding shares of restricted stock, pursuant to a clause in the incentive plan which provided that outstanding shares would be forfeited if the executive engaged in ?Ç£detrimental activity,?Ç¥ such as becoming employed by a competitor. The executive sued to recover the forfeited shares. Following judgment in favor of ExxonMobil at the trial court, the court of appeals reversed, holding that the choice of law provision was unenforceable because applying New York law… Continue Reading