Executive Compensation

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Earlier this month, the Internal Revenue Service (“IRS”) released Form 15620, which is an approved IRS form for making Internal Revenue Code (“Code”) Section 83(b) elections.  By way of background, Code Section 83(b) provides taxpayers with the ability to include the fair market value of nonvested property over the amount (if any) paid for…

In October, Institutional Shareholder Services (“ISS”) released an off-cycle update to its Executive Compensation Policies Frequently Asked Questions (the “FAQs”), which are available at this link:  US-Compensation-Policies-FAQ.pdf (the new questions are highlighted in yellow).  As described in more detail below, the updates to the FAQs address ISS’s criteria for recognizing “robust” clawback policies and realizable…

Both companies and their C-suite executives should be mindful of the interactions between COBRA and Medicare and their implications when negotiating a severance or retirement arrangement. This is because Medicare enrollment can terminate COBRA coverage, depending on the timing of when an executive elects COBRA and when they enroll in Medicare, and because an executive…

Earlier today, July 3, 2024, the United States District Court for the Northern District of Texas issued a preliminary injunction staying enforcement of the Federal Trade Commission’s (“FTC”) proposed final rule (“Final Rule”) banning most noncompete agreements in the United States.  However, the court’s preliminary injunction is limited in scope—it stays the Final Rule’s effective…

Glass Lewis (“GL”) recently released its annual Benchmark Policy Guidelines for 2024.  This update makes several changes to how the proxy advisory firm will evaluate company policies related to executive compensation.  Institutional Shareholder Services (“ISS”) also released updates to its voting policies for 2024, including new and updated responses to its Compensation Policies FAQ.…

Public companies nationwide have spent their summer and fall compensation seasons finalizing compensation clawback policies ahead of the December 1, 2023 deadlines set by the New York Stock Exchange (the “NYSE”) and the Nasdaq Global Market (“Nasdaq”), as applicable, as mandated by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of…

On September 1, 2023, California Governor Gavin Newsom signed Senate Bill 699, which amends California Business & Professions Code Section 16600 to prohibit an employer from entering into or attempting to enforce a non-compete agreement regardless of whether the contract was signed outside of California.  The law goes into effect on January 1, 2024.

Previously, California law banned non-compete agreements, subject to limited exceptions.  Section 16600 of the California Business and Profession Code states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”  By adding Section 16600.5 to the Business & Professions Code, SB 699 expands the restrictions on non-compete agreements to contracts entered outside of California.

A potentially overlooked but important issue that public companies should have in mind when granting option or option-like awards is avoiding the unintentional appearance of “spring-loading” and “bullet-dodging,” both of which have been a recent focus of the SEC and shareholders and viewed as potentially poor corporate governance practices.

“Spring-loading” is when a public company grants option or option-like awards shortly before the release of positive material nonpublic information, which is expected to increase the company’s stock price. The grantee of a spring-loaded award immediately benefits from the increase in the stock price. For example, if stock options are granted with an exercise price of $10 per share before market trading, and a positive earnings release causes the stock price to close the same day at $15 per share, each option would already be $5 in-the-money.

The converse of spring-loading is “bullet-dodging,” which is when a public company grants option or option-like awards shortly after the release of negative material nonpublic information, which is expected to decrease the company’s stock price. Again, the grantee immediately benefits from the decrease in the stock price. For example, if stock options are scheduled to be granted before market trading with an exercise price of $15 per share, but the grant is made after a negative earnings release, or more significantly if it is delayed until after the negative earnings release, and the stock price has since closed at $10 per share, the company would have avoided granting options that would each be $5 out-of-the-money.

Issuers that have been scrambling to prepare their boards and executives for accelerated implementation of compliant Dodd-Frank clawback policies will be glad to hear that the NYSE and Nasdaq have filed amendments to their proposed clawback rules to extend the effective date that would apply if the proposals are approved until October 2, 2023. If approved, the amendments would give listed companies until December 1, 2023 (60 days after the effective date of the rules) to adopt a compliant Dodd-Frank clawback policy.

The Tax Court’s May 3, 2023, decision in ES NPA Holding, LLC v. Commissioner (T.C. Memo 2023‑55), upholding a taxpayer’s position to characterize a partnership interest as a profits interest under the “safe harbor” of IRS Revenue Procedure 93-27 (as clarified by IRS Revenue Procedure 2001-43), provides helpful guidance to issuers of profits interests, including private equity funds and other investment partnerships and their portfolio companies.