Reed Smith LLP

C-Suite

Approving Compensation Under Laws That May Not Remain

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Inicio Perspectivas Approving Compensation Under Laws That May Not Remain
Directors and executives are well aware that executive compensation is heavily regulated and scrutinized. There is no shortage of legal and tax regulation impacting the design and disclosure of executive compensation. In addition, there are multiple government departments and agencies, including the IRS, SEC and DOL, as well as shareholder advisory groups and plaintiff lawyers, that carefully review executive compensation packages for compliance with the applicable laws and policies.

The regulation of executive compensation, however, will change in the near future. Both President Trump and members of Congress have stated that they favor the repeal or modification of many of the laws covering executive compensation. The targets for deregulation or modification are the Dodd-Frank Act, the Internal Revenue Code and the various laws that govern disclosures related to publicly-traded companies. The timing and scope of the potential deregulation or modifications to these laws, though, are uncertain.

In the meantime, companies are required to comply with the laws covering executive compensation that are in effect, including the Say on Pay requirements and related disclosures under the Dodd-Frank Act. Boards and executives are in the uneasy position of approving compensation packages under laws that may not be in effect when the compensation is paid. For example, the implementation of a deferred compensation program in 2017 may not be compliant of relevant when the compensation is scheduled for distribution if the requirements under Section 409A of the Internal Revenue Code are significantly modified in the interim.

Under the Present and Congress repeal or modify the laws covering executive compensation, boards and executives must comply with the current legal requirements. The potential liability of companies and the risk of enforcement actions or lawsuits are too great for boards and executives to take action now in anticipation of change in the regulation of executive compensation.