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Executive Compensation – 2012 Year-End Compliance and 2013 Planning

It’s that time of year again!  Time to ensure year-end executive compensation deadlines are satisfied and time to plan ahead for 2013.  Below is a checklist of selected executive compensation topics designed to help employers with this process.

I.       2012 Year-End Compliance and Deadlines

□      Section 409A – Amendment Deadline for Payments Triggered by Date Employee Signs a Release

It is fairly common for an employer to condition eligibility for severance pay on the release of all employment claims by the employee.  Many of these arrangements include impermissible employee discretion in violation of Section 409A of the Internal Revenue Code because the employee can accelerate or delay the receipt of severance pay by deciding when to sign and submit the release.  IRS Notice 2010-6 (as modified by IRS Notice 2010-80), includes transition relief until December 31, 2012 to make corrective amendments to plans and agreements.

Generally, the arrangement may be amended to either (1) include a fixed payment date following termination, subject to an enforceable release (without regard to when the release is signed), or (2) provide for payment during a specified period and if the period spans two years, payment will always occur in the second year.  We recommend employers review existing employment, severance, change in control and similar arrangements to ensure compliance with this payment timing requirement.  The December 31, 2012 deadline for corrective amendments is fast approaching.

□      Compensation Deferral Elections

Compensation deferral elections for

Jumpstart Our Business Startups Act (JOBS ACT) Contains Executive Compensation Provisions

Update (2:45 PM): As expected, President Obama has signed the JOBS Act into law.

The JOBS Act is expected to be signed by President Obama today. According to the Act, it is intended:

To increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.

The Act includes provisions relating to crowdfunding, access to capital markets, exemptions to encourage small company capital formation, increased private company shareholder threshold for registration, and reduced public company compliance and disclosure burdens for “emerging growth companies.”

In addition, Title I of the Act “ Reopening American Capital Markets to Emerging Growth Companies,” includes changes to executive compensation disclosure requirements for emerging growth companies.

Emerging Growth Company. An emerging growth company means a company with total annual gross revenues of less than $1 billion (indexed for inflation). Only companies with an IPO after December 8, 2011 can qualify as an emerging growth company. The company loses status as an emerging growth company upon the earliest of:

  • the last day of its fiscal year in which its annual gross revenues are $1 billion or more;
  • the last day of its fiscal year five years after its IPO;
  • the last day of its fiscal year in which it has, during the previous 3-year period, issued more than $1 billion in non-convertible debt; or
  • the date it is deemed to be a “large accelerated filer.”

Executive Compensation. An emerging growth company is exempt from

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