This instructive new memo: "Time to Revisit Executive Compensation Arrangements in Light of Recent Tax Reform" from Womble Bond & Dickinson identifies a plethora of potential compensation-related actions and changes for companies to consider as a result of the tax reform-triggered elimination of the performance-based compensation exception to IRC §162(m)'s deductibility cap - including changes to compensation program design and mix; updates to incentive plan documentation, employment agreements and board committee charters that reference the exception; and proxy statement disclosures.
While tempting to act now, the firm advises caution in reacting too swiftly pending the issuance of relevant guidance from the IRS and stock exchanges on grandfathered arrangements and shareholder approval requirements for plan amendments, respectively. The memo also notes that changes in compensation mix, performance metrics and/or committee/board discretion resulting from the repeal of the exception may trigger adverse reactions from ISS, and thus suggests companies wait and see whether the proxy advisor publishes supplemental policy recommendations on these issues to avoid inadvertently compromising the company's position.
Access our numerous additional resources on these pages: Executive Pay, Proxy Season, Tax Reform, and Proxy Advisors, and watch for more guidance, analysis, and observations in this week's Society Alert.