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COVID-19 and Compensation: Considerations for Public and Private U.S. Companies

The COVID-19 pandemic has created significant disruption in the financial performance of businesses across the globe, creating real challenges for compensation programs maintained by both public and private U.S. companies. While the health and safety of company employees does and should remain the primary concern, boards of directors and compensation committees may also want to consider how the economic impact of COVID-19 may affect their short- and long-term incentive compensation programs and the potential effects of related performance declines on employee morale and commitment.

1. Establishing and Adjusting Performance Goals for Incentive Compensation Programs.

The destabilizing forces of the COVID-19 pandemic have significantly impacted business operations around the globe. As a result, company performance may lag for reasons unrelated to employee performance. In that context, boards of directors and compensation committees should evaluate the performance goals that have been (or are scheduled to be) established for their current cash and equity incentive compensation programs and determine whether it would be in the company’s interest to adjust those performance goals . For public and private companies that have not yet established performance goals for 2020 performance periods, to the extent permitted under applicable plan documents it may be best to hold off on establishing performance goals until the impact of COVID-19 on business operations is more fully understood. Fortunately for U.S. public companies, the repeal of Section 162(m)’s performance-based compensation exception in 2017 created significant flexibility as to when during a performance period performance

Telemedicine – An Expanding Landscape

According to one recent survey, telemedicine services (i.e., remote delivery of healthcare services using telecommunications technology) among large employers (500 or more employees) grew from 18% in 2014 to 59% in 2016.  Common selling points touted by telemedicine vendors include reduced health care costs and employee convenience.  However, state licensure laws imposing restrictions on telemedicine practitioners can often limit the value (or even availability) of telemedicine services to employees.

But that seems to be changing.

Texas Law Change

This summer Texas passed legislation (SB 1107) prohibiting regulatory agencies with authority over a health professional from adopting rules pertaining to telemedicine that would impose a higher standard of care than the in-person standard of care.  With the enactment of SB1107, the Texas Medical Board must revise portions of its existing telemedicine regulations, which had largely been viewed as some of the most restrictive in the country.  Key revisions proposed by the Board at its July meeting included the elimination of the following requirements:

  • Patient must be physically in the presence of an agent of the treating telemedicine practitioner
  • Physical examination of the patient by the telemedicine practitioner in a traditional office setting within the past twelve months
  • Interaction between the patient and telemedicine practitioner must be via live video feed

However, it appears that the Board will continue its prohibition against the use of telemedicine for prescribing controlled substances for the treatment of chronic pain.

Prescribing Controlled Substances

Meanwhile other states have relaxed their rules relating to

SEC Guidance on Registration of 401(k) Plan Interests when Brokerage Windows are Offered

secThe Securities Act of 1933 prohibits the offer or sale of securities unless either a registration statement has been filed with the SEC or an exemption from registration is applicable. Although most qualified plan interests qualify for an exemption from the registration requirement, offers or sales of employer securities as part of a 401(k) plan generally will not qualify for such an exemption.  Accordingly, 401(k) plans with a company stock investment option typically register the shares offered as an investment option under the plan using Form S-8.

On September 22, 2016, the SEC released a Compliance and Disclosure Interpretation addressing the application of the registration requirements to offers and sales of employer securities under 401(k) plans that (i) do not include a company securities fund but (ii) do allow participants to select investments through a self-directed brokerage window.  Open brokerage windows typically allow plan participants to invest their 401(k) accounts in publicly traded securities, including, in the case of a public company employer, company stock.  The SEC determined that registration in this situation would not be required as long as the employer does no more than (i) communicate the existence of the open brokerage window, (ii) make payroll deductions, and (iii) pay administrative expenses associated with the brokerage window in a manner that is not tied to particular investments selected by participants.  This means that the employer may not draw participants’ attention to the possibility

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