The IRS has finally rolled out a way to submit Section 83(b) elections through an online filing system. Until very recently, taxpayers were obligated to write a letter to the IRS to claim the Section 83(b) election and mail that letter to their designated IRS office within 30 days.
The IRS adopted a one-page standard form for a Section 83(b) election that incorporates the requirements of Treasury Regulations Section 1.83-2 and IRS Revenue Procedure 2012-29 (Form 15620). This is a streamlined way to notify the IRS of the election, but taxpayers are still permitted to use alternative forms.
The adoption of IRS Form 15620 paved the way for electronic filing of Section 83(b) elections, which the IRS launched earlier this year. Taxpayers who want to submit the election online must sign in or create a new account on the IRS’s ID.me page, complete IRS Form 15620 on the IRS website and then either submit the completed form electronically (preferred method) or download the completed form and file it by mail.
This Sidley alert highlights some quirks of the online filing system that filers and companies should be aware of:
A cap on quantity. Each online filing currently accepts a maximum of 999,999 securities per submission. Very large founder grants and early-exercise option exercises can exceed this.
Two-decimal input for per-security values. The online form only allows two decimal places for the fair market value per security and the amount paid per security. This could be a problem for many typical startup early common stock prices (e.g., US$0.0001 per share) and a source of rounding noise in the form’s auto-calculated totals.
With these issues in mind, the alert suggests:
– Quantity: If your grant runs over [the] limit, consider filing by mail on paper Form 15620 (or a compliant letter election) to preserve accuracy and avoid partial filings until the online tool is updated.
– Per-security value: In our view, where the amounts are not material, rounding in a manner that is most conservative from a tax perspective is the better approach. The election’s legal effect is to include in income the difference between the fair market value and the purchase price of the underlying security as of the transfer date (thus eliminating the need to later include the value of the underlying securities in income as they vest), so if the per security purchase price is a fraction of a cent the total purchase price (or taxable spread) may not be material.
Additionally, a filer’s actual cost basis and consideration paid and actual fair market value determinations are evidenced by the grant/purchase documents and other records and should be reflected on the applicable tax return, as well as in the company’s records. (For avoidance of doubt: keep precise calculations and documentation in your files, and if the chosen rounding convention results in a material difference in basis or taxes consider doing a paper filing with the correct fractional purchase price and/or correct fractional fair market value.)
On Friday, the FTC announced that it is voluntarily dropping its appeals in two court cases where employers had challenged the legality of the 2024 rule banning most non-competes and won a nationwide injunction. The Fifth Circuit issued its dismissal order yesterday. The day prior, the FTC had charged a company with violating Section 5 of the FTC Act, alleging that the company’s policy to require nearly all newly hired employees to sign 12-month post-employment non-compete agreements was an unfair method of competition.
This White & Case alert notes that the consent order carves out “the use of non-compete agreements for directors, officers and senior employees in connection with the grant of equity or equity-based awards, non-competes entered into in connection with the sale of a business by the pre-existing equity holders of such business, as well as for certain individuals where non-compete agreements are justified to protect legitimate business interests.” It highlights a few key takeaways from these developments:
– The administrative complaint shows that protecting workers from what it views to be the unfair use of post-employment non-compete agreements remains a priority for the FTC.
– Employers that broadly use non-compete agreements, regardless of employee title, compensation or ability to cause harm to the employer, may be susceptible to enforcement action.
– A consent order and resulting compliance requirements can be burdensome.
It stresses that a tailored approach to the use of non-competes could potentially stave off FTC investigation or action.
Last week, every newsoutlet reported on Tesla’s newly announced pay package for Elon Musk. Since it’s hard to piece together from the news what you may want to know about this grant in your professional life — or even for cocktail party banter — here’s the TL; DR on what happened from a legal and compensation perspective:
– The proxy “unveils a longer-term CEO compensation strategy” consisting of a new performance award that is in some ways similar to, and in other ways different from, the 2018 award. (A chart on page 70 compares Musk’s 2012 award, 2018 award and 2025 award.)
– Performance Milestones: There are 12 milestones relating to market capitalization, starting at $2 trillion and going up to $8.5 trillion, over the 10 year performance period. Tesla stresses that If Elon achieves all the performance milestones, Tesla would become the most valuable company in history. The award also includes 12 operational milestones relating to products — like 10 million active autonomous driving subscriptions, 1 million AI robots delivered and 1 million robotaxies in commercial operation — and Adjusted EBITDA goals, which includes achieving Adjusted EBITDA of $400 billion over four consecutive fiscal quarters.
– Other Features: The shareholder letter says the award has “innovative structural features, born out of the special committee’s considered analysis, and extensive shareholder feedback.” For example:
Vested shares remain subject to a five-year holding period from the date they’re earned (if still in effect at the time of vesting).
The award gives Musk voting rights as the shares are earned, while economic rights remain subject to vesting over a 7.5+ year period.
Two tranches are only earned if Mr. Musk has developed a framework for CEO succession.
And two interesting “features” are meant to avoid volatility. First, Musk is supposed to dispose of these shares in an “orderly” way in coordination with Tesla. Second, there are only two dates the shares will vest despite the many tranches. Shares earned by the award’s 5th anniversary vest on the 7.5th anniversary and shares earned after the 5th anniversary vest on the 10th anniversary.
– The proxy asks shareholders to approve this new long-term grant — not for fiduciary purposes but under stock-exchange listing rules (so Elon and Kimbal Musk are entitled to vote on the proposal). Approximately 15 pages are dedicated to background and discussion of the process followed by the two member special board committee. The special committee’s full report is also appended to the proxy.
– The proxy also asks shareholders to approve an amendment and restatement of Tesla’s 2019 equity plan to increase the share pool. The original 2019 equity plan seems to have been intended for awards to employees other than Musk. The amended and restated plan creates a special share pool for the previously-announced $30 billion replacement grant to Musk and increases the general share pool for grants to other employees.
The proxy says the preliminary aggregate fair value estimate of the new award is $87.75 billion. Why are news outlets reporting the value at almost $1 trillion? That’s what the approximately 12% stake would be worth if the greatest market cap target is achieved. Not surprisingly, everyone seems to be sharing reactions on LinkedIn, and they range from Obi-Wan to Twister.
I blogged a few years ago about a survey from Professors Alex Edmans, Tom Gosling, and Dirk Jenter that found CEOs are more motivated by a sense of “fairness” than by adding a few more zeros to their bank accounts. In a follow-up study that was just published in the American Economic Review: Insights, Professor Edmans teamed up with Pierre Chaigneau and Daniel Gottlieb to examine what type of “fairness” concerns are most motivating.
The pre-print version of the study is available here. In addition to including a lot of complex equations that reminded me why I became a lawyer and blogger instead of an economist, it offers these findings about pay-for-performance:
We showed that fairness concerns do not lead to the agent being paid fair wages for all output levels; in contrast, unfair wages can induce effort efficiently. The optimal contract involves two thresholds for output. The agent receives zero below the lower threshold, the entire output above the upper threshold, and the fair wage in between. When fairness concerns are sufficiently strong, the top region disappears, and the contract becomes performance-vesting equity. Most other contracting theories predict continuous contracts, or extreme discontinuities where the agent’s pay switches from zero to the entire output.
Even if the incentive constraint is slack, pay is increasing in output – paying the agent the fair wage over a range of outputs reduces perceived unfairness and satisfies the participation constraint efficiently. As a result, the firm can induce CEO effort “for free”, potentially rationalizing why incentives are given even to intrinsically motivated agents.
It makes sense that the threat of “no payout” is a big motivator. Money doesn’t buy happiness, especially when you’re already wealthy. So it sounds like companies are on to something by requiring “threshold” performance for a payout. It makes you wonder whether “moonshot awards” move the needle, but it’s probably difficult to generalize human motivations across the board…
As Meredith shared in early July, Glass Lewis is planning to change its quantitative pay-for-performance model for the 2026 proxy season. We probably won’t know all the details until mid-October (at least), but this FW Cook blog describes what we know so far about the new multi-test scorecard. Here are a few key points:
– Replaces the current letter grading system (i.e., A to F) with a numerical scorecard
– Extends the pay-for-performance alignment measurement period from 3 years to 5 years
– Expands the relative pay and performance comparisons beyond the GL peer group to include broader general industry and market capitalization peers
– Utilizes multiple definitions of pay with the introduction of CAP to the model
The blog provides detailed charts about Glass Lewis’s new scorecard approach. According to FW Cook’s summary, there will be five relative tests and one qualitative test (i.e., six total) – and the charts summarize the various tests and factors.
Under this model, you want to get a high score. Glass Lewis will use the relative tests to calculate a numerical overall P4P alignment score that ranges from 0 to 100, and will apply the qualitative test as a negative modifier – i.e., it can only reduce the overall P4P alignment score. The overall score translates to a level of P4P misalignment concern ranging from negligible (81 – 100) to severe (0 – 20).
On her “Deep Quarry” Substack newsletter, Olga Usvyatsky recently analyzed trends for Q2 2025 clawback disclosures. Unlike Q1, the clawbacks disclosed during the most recent quarter related to “Big R” restatements. But Olga reiterated her prediction that “little r” restatements will likely be the more common trigger over time – as well as her observation that “little r” Dodd-Frank clawbacks may tell investors as much about the company’s pay design as they do about financial reporting shortcomings:
…Additionally, when a quantitatively immaterial misstatement leads to a clawback, it implies that performance targets were so narrowly met that even a minor correction tipped the outcome. For example, if an executive bonus was triggered at exactly 100% of a revenue or EPS target, a 1–5% overstatement could have made the difference between receiving or forfeiting an award.
Setting aggressive performance targets is a double-edged sword. While ambitious goals can align management incentives with those of shareholders, they can also create incentives for excessive risk-taking or earnings management to meet aggressively set thresholds.
As I mentioned in my previous post, clawbacks after immaterial little r restatements are not necessarily a sign of wrongdoing. Yet, arguably, no-fault clawbacks may expose weaknesses in accounting reporting or operational performance, thus warranting more scrutiny.
Olga’s comment caught my eye because from the company perspective, it underscores the need for compensation committees and audit committees to collaborate to understand the potential impact of financial metrics and financial reporting decisions on incentive programs – and the benefits that may be gained from “scenario planning.” Olga also considered the message that a company might be sending when a “Big R” restatement is disclosed, but the correction doesn’t trigger any clawback:
Thus, the question: are companies with “Big R” restatements less likely to rely on accounting-based metrics in setting executive compensation? Or perhaps these companies have easier-to-reach performance targets that are met even if the actual numbers are restated? Similarly, does restructuring the executive compensation agreements to move away from (or rely less on) accounting-based metrics following the implementation of Rule 10D-1 signals a potentially lower accounting quality concerns and foreshadows a future restatement?
An analysis of those questions will require a bigger data set than what we currently have. Which brings us back to Q2 trends and the fact that the number of affected companies will continue to grow over time. Olga identified these key trends for the most recent quarter:
– The number of error correction flags declined sharply in Q2 2025 compared to Q2 2024.
– The number of companies with the recovery analysis flag increased in Q2 2025 compared to Q2 2024.
– A failure to adopt the mandatory clawback policies or to attach the compensation recovery policy as an exhibit to the annual report led to amended filings or non-compliance with exchange listing rules for some issuers.
– Two companies reported restatements-related clawbacks and two more companies disclosed that the recovery analysis is still ongoing.
Check out the “Borges’ Proxy Disclosure Blog” for continued updates on clawback-related disclosure examples. We’ll also be giving practical guidance on clawbacks – and more! – at our October “Proxy Disclosure & 22nd Annual Executive Compensation Conferences.” Join us in Las Vegas on October 21st & 22nd – right before NASPP’s annual conference in the same location – or virtually, if you can’t attend in person. Here’s the can’t miss agenda – and all the excellent speakers. You can sign up online or reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271. Hotel rooms at the Virgin Hotel are going fast – so sign up today and book your room at our special rate!
This HLS blog post by Diligent Market Intelligence titled “Are CEO Pay Plans Too Samey?” inspired me to pick back up on one of the key themes of the SEC’s roundtable on executive compensation disclosure requirements — the homogenization of pay. CAP’s Matt Vnuk suggests in the blog: “Companies use standard designs to reduce criticism, which leads to better ‘say on pay’ results” though they may be better served to have more “tailored” designs.
This topic initially came up during the first panel at the roundtable when discussing whether proxy advisor policies influence executive compensation decision-making and whether the executive compensation disclosure requirements impact how investors and proxy advisors view pay packages. Some panelists at the roundtable — and the blog — touched on a number of ways that executive compensation design has become a bit “wash, rinse, repeat”:
– The use of modest base salaries, cash bonuses tied to financial metrics and the majority of compensation delivered in equity
– The widespread use of performance share awards
– The limited use of simple stock structures with long-term holding requirements
– The move away from stock options
– The widespread use of relative TSR as a performance metric
– The use of formulaic plans instead of discretionary
– Avoiding practices considered problematic or egregious by proxy advisors and investors
Issuer and investor participants seemed to agree that the move towards homogenized, super complex pay plans is not ideal, but no one was suggesting that today’s standard design be cast back into the volcanic fires of Mount Doom. Issuer participants stressed that having the flexibility to simplify equity programs would be welcome, but that a 180-degree change in the other direction, so that compensation committees do not feel that they have the option to use performance share units when appropriate, would also present challenges.
I can’t speak for the investor perspective, but I assume that some compensation-related “rules of thumb” are somewhat necessary to digest the sheer number of say-on-pay proposals that many asset managers vote on in a short few months of the year — given their diversified holdings and how compressed annual meeting season is in the US. A number of participants representing the issuer perspective endorsed a move toward more principles-based disclosure requirements — combined with tabular disclosures that more clearly convey target and realized compensation — that perhaps could improve the effectiveness of disclosures for investors where plan designs differ from the norm.
Liz recently shared some high-level themes from the comment letters that have been rolling in before and after the SEC’s roundtable on the executive compensation disclosure rules. Those comment letters focus primarily on the requirements of Item 402 of Regulation S-K. That makes sense because that’s what the SEC’s retrospective review appears to be focused on, based on the questions included in the statement by Chairman Atkins that was released with the announcement of the roundtable. But some commentators took this unique opportunity to use their letters to share thoughts on other existing rules relating to executive compensation.
For example, letters from Davis Polk, Cooley and A&O Shearman encourage the Commission to revive efforts it began with the 2018 concept release to modernize Rule 701 and Form S-8, reiterate support for certain measures reflected in the 2020 proposed rules and make suggestions for additional changes. These comment letters suggest, for example:
– Harmonizing the scope of eligible persons under Rule 701 and Form S-8
– Extending eligibility under Rule 701 and Form S-8 for consultants and advisors, specified post-termination grants to former employees, former employees of acquired entities and “platform workers”
– Clarifying the ability to add multiple plans to a single Form S-8 and allocate securities among multiple incentive plans on a single Form S-8
– Permitting use of a post-effective amendment to add shares on a Form S-8
– Modifying Rule 701 disclosure requirements
– Aligning the treatment of RSUs with the treatment of options so that the “date of sale” for RSUs is deemed to be the date of vesting or later settlement (and/or delaying required disclosures to new hires to be within 14 days following their hire)
– Extending the Rule 701 exemption to reporting companies
– Simplifying registration on Form S-8 for securities offered under 401(k) plans
Davis Polk’s letter also tackles related person transaction reporting under Item 404 of Regulation S-K, current report disclosures under Item 5.02 of Form 8-K and exhibit filing requirements under Item 601 of Regulation S-K.
Part 1 of Sullivan & Cromwell’s annual Proxy Season Review shares some helpful details on the nature and outcome of compensation-related shareholder proposals in the 2025 proxy season, noting that they “continue to be difficult to exclude and unlikely to be withdrawn.”
Consistent with H1 2024, over 75% of all compensation submissions reached a vote, the highest proportion across all categories.
As Liz has shared, support is up, but the story isn’t super clear-cut — partly due to the opposing forces of “traditional” proposals versus “anti-ESG” and significant changes this year in proposals related to ESG-linked performance measures.
No proposals passed. Overall, average shareholder support increased slightly from 14% to 17%.
Not counting proposals from “anti-ESG” proponents, which averaged 1% shareholder support and constituted 14% of proposals in this category (vs. 5% in H1 2024), support for compensation proposals increased significantly (from 15% in H1 2024 to 29% in H1 2025).
Last year, we saw for the first time proposals from “anti-ESG” proponents to rescind or reevaluate ESG-linked incentives. There were three such proposals in H1 2024, and the focus was on GHG emissions.
This year, “anti-ESG” proponents were responsible for all ESG-linked compensation proposals. The proposals focused on narrowing or eliminating DEI goals in executive pay incentives . . . These proposals averaged 2% votes cast, consistent with overall shareholder support for proposals from “anti-ESG” proponents.
Voting outcomes for clawback-related proposals also moved against the general trend of increasing support for compensation-related shareholder proposals.
Following the SEC’s adoption of its mandatory clawback rule in October 2022, we saw a sharp increase in clawback proposals last proxy season. Generally, these proposals demanded that companies go beyond mandatory clawback requirements in their corporate clawback policies . . .
This proxy season, the number of submitted clawback proposals remained fairly level with H1 2024 . . . These proposals achieved significantly lower shareholder support (averaging 7% of votes cast vs. 17% in H1 2024). Similar to last proxy season, none passed.
I’m looking forward to a deep dive on the interesting 2025 shareholder proposal season at our October “Proxy Disclosure & 22nd Annual Executive Compensation Conferences.” Join us in Las Vegas on October 21st & 22nd – right before NASPP’s annual conference in the same location – or virtually, if you can’t attend in person, so you don’t miss any of our practical agenda. Sign up online or reach out to our team at info@ccrcorp.com or 1.800.737.1271.
WTW evaluated S&P 500 proxy statement disclosures related to CEO security spend in 2025, comparing data to prior years. Not surprisingly, the report cites increased prevalence, but a decrease in median value. The “relatively low costs” of these programs cited below may largely be due to the time of year they were implemented, so this data may change significantly once 2025 spending is reported.
The median value of security services for CEOs in 2024 was approximately $80,000, down from approximately $94,000 in 2023. The rise in prevalence but drop in median value in 2024 likely were related, as there was an influx of newly established programs with relatively low costs by end of year. Among 25 companies that reported they had established security services for the CEO in the past year and disclosed an associated value; the median was just $54,630.
Spend varied greatly depending on company size and CEO profile.
Unsurprisingly, corporations with the largest revenue were most likely to report security benefits. Nearly two-thirds (64%) of S&P 500 companies with revenue of more than $30 billion provided their CEO with security services (up from 53% in 2023). Conversely, just 16% of companies with less than $6 billion in revenue did the same, up from only 9% in the prior year.
Also, sectors with a concentration of high-profile CEOs are more likely to provide security services. Sixty percent of S&P 500 communication-sector CEOs received security services — the largest percentage of the group. Healthcare saw the biggest jump in the number of CEOs in our study receiving enhanced protection in 2024, with 40% receiving services (up from 25% in 2023). Similarly, the IT sector grew from 30% to 42%, with both the communication and IT sectors reporting median values of more than $100,000 in 2024.
Types of security services included:
– Physical or general protection – Transportation-related services (e.g., car and driver) – Home and residential security (installation and maintenance of equipment & monitoring services) – Cybersecurity or identity theft protection – Personal use of corporate aircraft (reported separately, but often required or encouraged due to secuity concerns)