TheCorporateCounsel.net

In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance, and pop culture. Topics include:

– Marty’s favorite concerts in 2010
– What to expect in the 2011 shareholder proposal season
– The latest SEC Staff comment trends
– Key areas for comment on the proxy plumbing concept release

Top 10 Concerns for Directors: Executive Compensation #1

In this recent survey conducted by Corporate Board Member and FTI Consulting, executive compensation topped the list with 41% of the respondents listing it as a major concern (all the more reason to attend our upcoming week of executive pay conferences). Here is the list:

1. Executive Pay – 41%
2. Governance & compliance – 38%
3. M&A – 34%
4. Investor relations – 33%
5. Operational risk -33%
6. Liquidity – 31%
7. Internal controls – 29%
8. Managing media & company reputation – 28%
9. Managing outside legal fees -23%
10. Proxy and election of director issues – 22%

It’s interesting that proxy access is listed at the bottom, somewhat confirming my belief that those who view access as an apocalyptic event may be overreacting…

Last Chance to Correct for Section 409A

On CompensationStandards.com’s “Melbinger’s Compensation Blog,” Mike Melbinger gives us this warning:

I cannot overemphasize how important it is for every employer in America with non-qualified deferred compensation plans or employment, severance or change in control agreements that are subject to Code Sec. 409A (which includes just about all of them) to review its compliance with 409A one more time before December 31, 2010. This is because the IRS has given us one last chance to correct drafting issues in compensation plan documents and agreements that are subject to 409A, without penalty, under Notice 2010-6.

That is the good news. The bad news is that Notice 2010-6 does much more than just offer correction methods. It contains numerous examples of situations that the 409A final regulations did not clearly address – and provides for significant penalties for many plan provisions that a normal person might view as a foot fault. Therefore, even if you (and your counsel) thought your plans and agreements fully complied with 409A by the previous December 31, 2008 deadline, changes made by Notice 2010-6 may require you to take another look.

Revising plans and agreements to comply with Notice 2010-6 should be easy. What employers have found more troubling are the notice requirements of the Notice. If the necessary plan revision rises to the level of a “document failure” under the Notice, the employer that makes a “correction” must attach a statement to its original federal income tax return for the taxable year in which it makes the correction, which includes the name and taxpayer identification number of each employee affected by the document failure, the name of the plan or agreement with respect to which the failure occurred and four other specific items of information. If an employee is required to include an amount in income during a subsequent year to be eligible for the relief under the Notice, the employer also must attach this statement to its federal income tax return for the subsequent to the taxable year as well.

The employer must provide a similar statement to each affected employee, by the date it is required to provide Form W-2 or 1099 to the employee, which the employee must attach to his or her income tax return.

Therefore, employers may want to think hard about whether any revisions they make to plans and agreements are substantive corrections of document failures or mere clarifications.

– Broc Romanek