September 27, 2007

Still Looking for Relief: 409A Deadline

Even though the IRS and Treasury recently pushed back the deadline for some of the 409A provisions, many believe that they didn’t go far enough. Recently, 96 law firms joined together to send this letter requesting a broader extension of the deadline for amendment of deferred compensation plans to comply with Section 409A to the IRS and Department of Treasury.

Corp Fin Guidance: Filing Date Adjustments, Filing Deletions/Withdrawals, Etc.

Given the number of questions we get on the topic, I was pretty excited to see Corp Fin issue written guidance about how they handle EDGAR filing date adjustments, post-acceptance corrections, filing deletions and withdrawals, and continuing hardship exemptions.

I imagine that if the Office of Disclosure Support continues to issue this type of guidance on relatively common situations like this, it will diminish the number of phone calls they receive…

Clawbacks and Careful Drafting

From Mike Melbinger’s blog: A case decided earlier this month caught my attention, as it illustrates three important points. In JPMorgan Chase & Co. v Pierce, JPMorgan sued its former Senior Vice President Sandra Pierce to recover $376,000 in compensation Ms. Pierce received from 1999 through 2003 under certain Stock Award Agreements. Pierce left JPMorgan in December 2004 to accept a position with another Bank. The Stock Award Agreements authorized JPMorgan to “claw back” stock award compensation Pierce received if she became employed by a JPMorgan competitor and “perform[ed] the same or substantially similar functions to those which [she] performed while employed by [JPMorgan].” [ed. note: we have posted the opinion in the “Clawback Provisions” Practice Area on]

The court faced three interesting and relevant issues: (1) whether the claw back provisions of the award agreements was enforceable, (2) whether JPMorgan Chase had properly delegated the authority to make the decision on competitive employment to is Human Resources Director, and (3) whether the court should apply a deferential standard of review to the decision of the Human Resources Director.

The court dispose of the first issue easily, finding that the claw back provision was clearly enforceable as a matter of Delaware contract law.

The second issue was a bit closer, since JPMorgan’s documentation of its delegation of authority to the Human Resources Director was less than thorough. (Make a note: be sure to document all delegations of authority carefully and fully.)

The third issue was the unusual feature of this case/decision – its discussion of the judicial standard of review applicable to ERISA cases. Many of us have – for years – drafted our equity compensation plans (and other non-ERISA plans) to include language we developed for ERISA plans following the US Supreme Court’s decision in Firestone v. Bruch (1989). Firestone held that if the plan document reserved to the plan administrator the power and authority to apply and interpret the plan’s (ambiguous) terms in its sole discretion, and the plan administrator made such a decision, then the court would only overturn that decision if it found the administrator’s decision to be “arbitrary and capricious” – a high standard. We add this language in the hope that a court seeing this interpretive language will look to ERISA, by analogy, for guidance and apply the arbitrary and capricious standard. In this case, the court did not rely solely on the arbitrary and capricious standard, but seemed to apply a similar analysis in finding in favor of JPMorgan and its Human Resources Director.

Act Now: Join Mike – as well as in-house practitioners from McDonalds and Intel – to learn more about protective/proactive plan drafting and claw backs for their panel at the “4th Annual Executive Compensation Conference.” You can catch this Conference in two weeks either in San Fran or by video webcast. And you can watch this Conference online – along with our “2nd Annual Exec Comp Disclosure Conference” and “Hot Topics Conference” as part of a “Member Appreciation Package.”

– Broc Romanek