Executive Compensation and 409A
Executive Compensation and 409A
Boards of directors (or compensation committees) face many challenges in providing the correct mix of base salary, annual incentive bonus, long-term incentive bonus, fringe benefits and other perquisites that are intended to induce the organization’s senior executives to carry out and achieve the organization’s strategic goals. In today’s market, creating a competitive and tax-efficient mix of compensation and benefits is critical to attracting and retaining highly sought-after executives and aligning their interests with those of the organization and its stakeholders. Because of special legal and tax limitations and restrictions that apply only to executive compensation, the process of choosing the right mix and preparing the employment agreement or other documents that reflect and deliver the desired compensation and benefits can be confusing and is typically highly time sensitive.
Attorneys in our Executive Compensation and 409A practice know the ins and outs of executive compensation and executive benefit programs, including the special, but critically important, federal income tax, ERISA and state laws that must be considered. We have represented both employers and executives in connection with the employment and termination of executives, including executive employment arrangements entered into or severed in connection with merger or acquisition transactions. We combine a multidisciplinary approach with our substantial experience handling these issues to provide clients with thoughtful insight and practical solutions that align with current market trends.
Our attorneys represent publicly traded companies, private businesses, tax-exempt organizations and governmental entities (or their boards of directors, governing bodies or compensation committees) and executives who are considering entering into or terminating an employment relationship or who are in such a relationship and now wish to memorialize it in writing or amend the written agreements and instruments forming such relationship. We also advise employers on establishing, modifying and terminating annual incentive plans, long-term incentive plans, including stock-based incentive plans, non-qualified deferred compensation plans and other perquisites, and incentives provided to executives that may or may not be subject to Section 409A of the Internal Revenue Code (Code).
We advise employers and assist with the preparation of the documents that implement and communicate these agreements and arrangements to eligible executives in a manner that avoids exposing the employer to unexpected duties, liabilities or obligations. When we represent executives, we negotiate these agreements and arrangements to provide the executive with necessary and available protections that are desired to ensure the employer performs its duties and obligations.
Attorneys in our Executive Compensation and 409A practice also defend employers against executives’ claims for benefits under ERISA or state law, as may be applicable, and bring such suits on behalf of executives.
Our attorneys have a wide range of experience in all aspects of executive compensation arrangements, including:
- Designing and establishing non-qualified executive retirement plans and the funding, if any, of all or a portion of an employer’s benefit obligations: supplemental executive retirement plans (SERPs), excess benefit plans, eligible Code Section 457(b) plans, ineligible Code Section 457(f) arrangements, rabbi trusts, corporate-owned life insurance (COLI) and trust-owned life insurance (TOLI).
- Designing and establishing stock-based incentive plans: incentive stock options (ISOs), non-qualified stock options (NSOs), stock appreciation rights (SARs), phantom stock, restricted stock and restricted stock units (RSUs), performance shares and performance units.
- Assisting with the drafting, design and implementation of executive severance plans, change-in-control plans and retention bonus plans.
- Drafting and negotiating employment agreements with executives that may provide evergreen rights, non-renewal rights, position, duties, reporting obligations, job location, base salary, annual target bonus, long-term incentive awards, sign-on bonus, claw backs, moving and relocation expenses, supplemental pension and welfare arrangements, automobile allowance, club memberships, tax return and financial planning allowance, executive physicals, severance pay and benefits, change-in-control benefits and modifications thereto in the event Code Section 280G applies, resolution of disputes, confidentiality, non-competition, non-solicitation, non-disparagement, indemnification and D&O insurance coverage.
- Advising employers on the impact of merger, acquisition or other corporate transactions on executive compensation arrangements, including analyzing the effect of Code Section 280G, when applicable.
- Drafting separation agreements for departing executives that need to be integrated with employment agreements and other contractual arrangements, and that may provide separation pay and other severance benefits in exchange for a release of claims, no admission of liability or known violations of law, confidentiality, non-compete and other restrictive covenants, return of company property, post-employment cooperation and joint press release.
- Advising employers on improving the effectiveness of covenants not to compete and other restrictive covenants.
- Preparing a Form S-8 registration statement filed with the Securities and Exchange Commission (SEC) to register securities offered under stock-based incentive plans of publicly traded companies.
- Notifying and advising on changes in the laws applicable to executive compensation and fringe benefit arrangements.
- Defense of litigation against, or bringing suit on, a wide variety of claims, including allegations of wrongful denial of benefits (an ERISA Section 502(a)(1)(B) action), unlawful interference in an executive’s right to attain benefits (an ERISA Section 510 action), promissory estoppel and other equitable causes of action (an ERISA Section 502(a)(3) action) and state law causes of action, when applicable.
Taft Grows its Tax Practice with the Addition of Beaty and Kuester
All Executive Compensation and 409A Professionals
- Richard E. Aderman
- Patricia L. Beaty
- Stephen A. Brunn
- Christopher M. Fowler
- Michael A. Laing
- Gregory Parker Rogers