May 16, 2018
Performance Awards in a Post-Tax Reform World
– Liz Dunshee
This memo from Gallagher’s Jim Reda asks the question that’s been on everyone’s mind this year: how will the repeal of the Section 162(m) performance-based exception for tax deductions affect incentive programs, particularly after a decade of steady stock option decline and increasing prevalence of “performance-based” awards? Here are some of Jim’s predictions:
1. ISOs will regain some popularity – but the use of non-qualified options will decline & stock option programs will be redesigned to maximize executives’ tax benefits
2. Fixed pay & time-vested awards will increase as a portion of total compensation
3. SERPs and other non-qualified deferral programs will make a comeback
4. CEO pay growth will slow
Ultimately, though, Jim predicts that performance awards are here to stay. Not only do many states have tax laws based on the pre-Tax Reform version of 162(m), but shareholders & proxy advisory firms continue to demand a connection between pay & performance. And don’t forget that written binding contracts in effect on November 2, 2017 are grandfathered in – as long as they aren’t materially modified.
Learn more about how to handle tax reform changes at our “Pay Ratio & Proxy Disclosure Conference” – to be held September 25-26 in San Diego and via Live Nationwide Video Webcast. Here are the agendas – nearly 20 panels over two days. Register before June 29th for a reduced rate.