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Dodd-Frank: Proposed Rules Issued Governing Incentive Compensation of Designated Executives

Proposed rules were issued jointly by several federal agencies, to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions and are deemed to be excessive or that may lead to material losses.?á Generally, the proposed rules apply to covered institutions, including national banks, state member banks, U.S. operations of a foreign bank with more than $1 billion in assets, and others.?á The proposed rules clarify that incentive-based compensation is “excessive” if the amounts are unreasonable or disproportionate to the services performed.?á An incentive-based compensation arrangement will be considered to encourage “inappropriate risks” unless it balances risks and financial rewards, is compatible with effective controls and risk management, and is supported by strong corporate governance.?á Covered institutions with at least?á$50 billion in assets must defer at least half of the incentive-based compensation of executive officers for… Continue Reading

SEC Adopts Final Rule on Say-on-Pay and Golden Parachute Compensation

On January 25, 2011, the Securities and Exchange Commission (SEC) adopted final rules implementing the approval of executive compensation (and frequency of approval of executive compensation) and golden parachute compensation as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the final rules, public companies subject to the federal proxy rules are required to: (1) provide their shareholders with an advisory vote on executive compensation at least once every three calendar years (?Ç£say-on-pay?Ç¥), (2) provide their shareholders with an advisory vote on the desired frequency of these votes at least once every six calendar years (say-on-frequency); (3) provide shareholders with an advisory vote on golden parachute arrangements and understandings in connection with merger and other corporate transactions (say-on-golden-parachute compensation); and (4) provide additional disclosure of golden parachute arrangements in merger proxy statements. The say-on-pay and say-on-frequency votes are required at least once every three years and every… Continue Reading

Additional Relief for Correction of 409A Operational and Document Failures

The IRS issued additional relief allowing nonqualified deferred compensation plans to correct operational and document failures to comply with Internal Revenue Code section 409A. With respect to correction of plan document failures, the additional relief provides: (1) that the types of plans eligible for relief include (a) a nonqualified plan linked to a qualified plan or another nonqualified plan, provided that the linkage does not affect the time and form of payments under the plans and (b) certain stock rights (stock options and stock appreciation rights) that were intended to be subject to, and compliant with, 409A but that have a plan document failure; (2) an additional method of correction for certain failures involving payments at separation from service subject to the requirement to submit a release of claims or similar document, and transition relief through December 31, 2012 to correct such failures that were in effect on or before… Continue Reading

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