2013 End of Year Plan Sponsor “To Do” List Part 1 – Executive Compensation

by Snell & Wilmer

As 2013 comes to an end, we are pleased to present you with our traditional End of Year Plan Sponsor “To Do” Lists. This year we are presenting our “To Do” Lists in three separate Employee Benefits Updates. Part one of the series will cover year-end executive compensation issues, part two will cover health and welfare plan issues and part three will cover qualified plan issues.  Each Employee Benefits Update will provide you with a “To Do” List of items on which you may want to take action before the end of 2013 or in early 2014. As always, we appreciate your relationship with Snell & Wilmer and hope that these “To Do” Lists help focus your efforts over the next few months.

This Employee Benefits Update, part one of our End of Year Plan Sponsor “To Do” Lists, focuses on year-end executive compensation issues.

Executive Compensation “To Do” List

  •  Last Chance to Correct Certain Section 409A Document Failures Discovered in 2013: Although not specifically addressed in the Section 409A regulations, most commentators believe that Section 409A document failures can be corrected in years in which the deferred amounts are not yet vested or for which the substantial risk of forfeiture (or contingency upon which the compensation is paid) has not yet occurred. This means that Section 409A document failures discovered in 2013 may be corrected prior to December 31, 2013 without taxes and penalties if the deferred compensation amounts remain unvested through December 31, 2013. To take advantage of this correction opportunity, the amounts in question must remain unvested for the balance of 2013 and correction must occur prior to the date the compensation vests.
  • Consider Shareholder Reapproval of Section 162(m) Performance Compensation Plans Approved in 2009: Section 162(m) of the Internal Revenue Code ("the Code") limits the deduction a public company may take for compensation payable to “covered employees” to $1,000,000 per year. “Performance-based compensation” that meets the requirements of Section 162(m) is not subject to this limitation. The Section 162(m) regulations require that, every five years, the shareholders reapprove the performance goals that determine the amount of “performance-based compensation” to be paid. This means that companies that obtained shareholder approval of plans containing Section 162(m) performance goals in 2009 must resubmit the plans for shareholder approval in 2014. This is generally done by having the shareholders reapprove either the 162(m) performance goals or a new incentive plan that provides for the award of compensation that complies with Section 162(m).
  • Review Whether Your Equity-Based Compensation Plan Has Sufficient Shares Remaining for 2014 Grants: Employers should review share pool information to determine whether to ask the shareholders to increase the number of shares available for grant. If additional shares are needed, the request should be submitted for shareholder approval at the 2014 annual meeting.
  • Consider Adding Separate Annual Limits on Director Equity Awards: In response to the Delaware Chancery Court’s ruling in Seinfeld v. Slager, employers that are adopting or amending equity-based compensation plans in 2014 should consider adding a separate annual limit on director equity awards (most equity-based compensation plans do not currently provide for a separate annual limit on director equity awards). In Seinfeld, the Chancery Court refused to apply the “business judgment rule” to dismiss a challenge to directors who approved large equity awards for themselves under a shareholder-approved equity-based compensation plan. The Court ruled that the plan did not impose “meaningful limits” on the maximum award that could be made to a director, and therefore, lacked sufficient definition to afford protection under the business judgment rule. The questions for employers to consider in light of Seinfeld are whether to (1) add a separate annual limit for director equity awards; and (2) ask the shareholders to approve the limit to afford protection under the “business judgment rule.”
  • Code Section 6039 Information Statements Due by January 31, 2014: Section 6039 of the Code requires companies to file a return and provide a written information statement to each employee or former employee regarding: (1) the transfer of stock pursuant to the exercise of an Incentive Stock Option (“ISO”); and (2) the transfer by the employee or former employee of stock purchased under an Employee Stock Purchase Plan (“ESPP”). Section 6039 applies to stock purchased under an ESPP if the stock was purchased at a permitted discount. For ISO grants and ESPP transfers occurring in 2013, the Section 6039 information statements must be provided no later than January 31, 2014.
  • Review Grant Procedures for Upcoming Equity-Based Grants: The stock option backdating scandals were solemn reminders of serious corporate, tax, accounting and legal issues that can be resolved by an employer carefully reviewing its grant practices and procedures. An employer may wish to carefully review its stock plan to determine which entity is charged with making grants under the plan and put in place best practice procedures to ensure the proper entity takes the appropriate action as of the date the awards are considered granted.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Snell & Wilmer | Attorney Advertising

Written by:

Snell & Wilmer

Snell & Wilmer on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.