Willis Towers Watson's "Designing pay plans in the new 162(m) world" notes few changes to date in pay plan design as a result of the Tax Act-triggered elimination of the IRC §162(m) performance-based compensation exception, but encourages companies to disclose in their shareholder-approved plans or CD&As, or otherwise affirmatively reassure investors, that they will maintain §162(m) exception-prompted good governance practices notwithstanding the fact that they may no longer be required to do so.
Specifically, the firm suggests companies:
- Continue to establish maximum amounts/shares payable to covered employees per the plan document
- Agree upon extraordinary items and rules around financial metric exclusions at the beginning of the performance period - not after the fact at year-end
- Pre-establish performance goals (i.e., within the first 90 days after the beginning of the performance period)
- Ensure performance goal outcomes are substantially uncertain when adopted
- Limit the use of “upward” discretion outside of individual performance goals, which should generally be measurable and objective
The article also summarizes ISS's position on changes in pay practices as a result of, or accommodated by, the exception's repeal.
Access additional information & resources on our Executive Pay page under Tax Reform-Related. This post first appeared in the weekly Society Alert!