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ISS Launches New Equity Plan Data Verification Portal

Institutional Shareholder Services Inc. (?Ç£ISS?Ç¥) recently announced the launch of a new Equity Plan Data Verification portal that covers information on equity-based compensation plans that U.S. companies submit for approval by shareholders. Companies may now access the portal to review and update key datapoints that are evaluated by ISS before ISS issues its proxy recommendation. Companies planning to feature an equity plan on their proxy ballot, and will file their definitive proxy materials with the SEC after September 8, 2014, are eligible to participate in Equity Plan Data Verification. Any such company is encouraged to register with ISS to receive notification of the availability of company data, and upon notification, the company will have two business days to verify the data and/or request modifications. More information, including FAQs, can be found here.

IRS Rules that Certain Stock Appreciation Rights Are Exempt from Section 457A

In Revenue Ruling 2014-18, the IRS ruled that a stock appreciation right granted by a ?Ç£nonqualified entity?Ç¥ for purposes of Internal Revenue Code Section 457A, that by its terms must be settled, and is only settled, in service recipient stock as defined in Section 409A, is exempt from Section 457A. Section 457A generally applies to deferred compensation paid by certain foreign corporations. Section 457A provides that the term ?Ç£nonqualified deferred compensation plan?Ç¥ has the meaning given under Section 409A, except that it also includes any plan that provides a right to compensation based on the appreciation in value of a specified number of units of the service recipient, i.e., stock appreciation rights. While stock options that are exempt under Section 409A are exempt from Section 457A, stock appreciation rights are generally not exempt. This ruling allows certain stock appreciation rights to be exempt from Section 457A. A copy of the… Continue Reading

Supreme Court Holds that Severance Payments are Subject to FICA

In rejecting the decision of the U.S. Court of Appeals for the Sixth Circuit, the U.S. Supreme Court recently ruled unanimously in favor of the IRS and held in United States v. Quality Stores, Inc. that severance payments for involuntary terminations of employment are generally subject to Federal Insurance Contributions Act (?Ç£FICA?Ç¥) taxes (i.e., Social Security and Medicare taxes). In taking a broad view of the FICA statute, the Court concluded that severance payments are ?Ç£remuneration for employment?Ç¥ within the meaning of the FICA statute and in consideration for employment. The Court also ruled that the payments made by Quality Stores, which were based on individuals?ÇÖ positions with the company and their years of service, were specifically tied to their employment, and thus, wages for purposes of FICA.?á United States v. Quality Stores, Inc., No. 12-1408 (U.S. Mar. 25, 2014).

Federal Court Grants Country Club?ÇÖs Motion for Summary Judgment Denying Additional Top-Hat Plan Benefits for Ex-General Manager

The general manager of a country club resigned from employment and then sued the country club for mishandling and commingling benefits under a ?Ç£deferred compensation plan?Ç¥ and an ?Ç£employment agreement plan.?Ç¥?á The court determined that both plans were top-hat plans under the Employee Retirement Income Security Act of 1974, as amended (?Ç£ERISA?Ç¥), because they were unfunded and provided deferred compensation for ?Ç£a select group of management or highly compensated employees.?Ç¥?á The court then reviewed the benefit determinations under a de novo standard because the Firestone deferential standard of review does not apply to top-hat plans.?á The court summarily disposed of the ERISA fiduciary claims because top-hat plans are exempt from ERISA?ÇÖs fiduciary standards.?á The claims that the country club interfered with the employee?ÇÖs ERISA rights were denied because there was no evidence of constructive discharge.?á The recovery of benefits claims were upheld but limited under a factual analysis.?á Finally, the… Continue Reading

Employer with Discretion to Reduce or Eliminate Bonuses Prior to Payment Not Entitled to Deduction in Year Bonuses Accrued, Rather Than in Year Paid

In Field Attorney Advice Memorandum 20134301F, the IRS determined that an employer was not entitled to deduct bonus compensation in the year it was earned, rather than in the year it was paid, because the corresponding bonus plan documents gave the employer unilateral discretion to reduce or eliminate bonus amounts at any time before they were paid. Under the ?Ç£all events test,?Ç¥ an employer generally may deduct bonus compensation in the year it is earned, rather than in the year it is paid, if (i) all events have occurred by the end of the year to which the bonus relates that establish both the fact and amount of liability and (ii) the bonus is paid within 2???ámonths after the end of such year. The IRS reasoned that the discretion to reduce or eliminate bonus amounts at any time prior to payment prevents the ?Ç£fact of liability?Ç¥ and the ?Ç£amount of… Continue Reading

Delaware Chancery Court ?Ç£Green Lights?Ç¥ Claims against Directors for Approving Excessive Stock Option Grants

The Delaware Chancery Court denied a motion to dismiss a shareholder derivative action claiming that the company?ÇÖs directors breached their fiduciary duty to shareholders by approving stock option grants to the president in excess of amounts permitted under the company?ÇÖs stock incentive plan and by issuing a materially misleading 2012 proxy statement.?á The action also asserted claims against the company?ÇÖs president for breaching his fiduciary duty and for unjust enrichment by accepting the grant.?á The directors sought to dismiss the claims for demand futility and failure to state a claim.?á The court denied the motion to dismiss for futility because the grants were a clear violation of the terms of the plan.?á The motion to dismiss for failure to state a claim was dismissed because the clear violation of the stockholder-approved plan implicates the duty of loyalty and therefore states a viable claim.?á Pfeiffer v. Leedle, C.A. No. 7831-VCP (Del.… Continue Reading

SEC Proposed Rule Requiring CEO Pay Ratio Disclosures

As mentioned before, the SEC recently released a proposed rule that would require public companies to disclose the median annual total compensation of all their employees and the ratio of such median to the annual total compensation of their CEO.?á This requirement is commonly known as the ?Ç£pay ratio disclosure?Ç¥ requirement.?á You can find our recent alert discussing the proposed rule here.

SEC Proposes Rule Requiring CEO Pay Ratio Disclosures

The SEC recently released a proposed rule that would require public companies to disclose the median annual total compensation of all their employees and the ratio of such median to the annual total compensation of their CEO.?á This requirement is commonly known as the ?Ç£pay ratio disclosure?Ç¥ requirement.?á?áThe proposed rule can be found?áhere.

Deferred Compensation Arrangements in Employment Agreements Not an ERISA Plan

The Fifth Circuit Court of Appeals overturned a district court decision finding that deferred compensation arrangements in employment agreements constituted an ERISA Plan.?á Although there was a cap on certain payments, the court held that such provision did not involve enough employer discretion to constitute an administrative scheme, thus ERISA did not apply.?á The court also noted that the cap would likely never be triggered, no administrative scheme was needed to monitor the company?ÇÖs former employees to ensure compliance with non-compete provisions, and even though the triggering events, including termination without cause and retirement, would occur more than once and at a different time for each employee, they could easily be ascertained without employer discretion. Cantrell v. Briggs & Veselka Co., No. 12-20294 (5th Cir. Aug. 27, 2013).

Termination of Employment Following Rescission of an Involuntary Termination Notice is a Voluntary Termination

The?áU.S. Court of Appeals?áfor the Seventh Circuit recently held that the decision by the plan administrator of an ERISA-covered severance pay plan was not arbitrary or capricious when it denied severance benefits to employees who terminated employment after the company sent involuntary termination notices, but later rescinded such notices. The court held that the employees?ÇÖ termination was voluntary. In Reddinger v. SENA Severance Pay Plan, the employees received notices stating that the plant where they worked was closing, their employment would be terminated effective May 2, 2008, and severance pay would be provided if they timely executed and returned a release agreement. Following receipt of the termination notices, the employees sought alternative employment. Two weeks after the termination notices were sent, the company notified the employees that the plant was going to stay open until October 1, 2008, and that releases were no longer being accepted. A retention bonus and… Continue Reading

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