Earlier this month, I posted on the surging interest among companies in causing their annual incentive bonuses for 2017, payable in 2018, to be deductible in 2017. Since then, a few clever readers have inquired as to whether a company could achieve this result while still preserving its deduction under the Code Sec. 162(m).
The answer to both questions, in many cases, is yes. And companies may be able to accelerate into 2017 the vesting, taxation, and deductibility of some performance-based equity awards with performance periods that end on December 31, 2017. (Note that executives may not be too keen on having the taxation of their awards accelerated into 2017, but we’re working on that.)
The potential stumbling block is the 162(m) requirement that the “compensation committee must certify in writing prior to payment of the compensation that the performance goals and any other material terms were in fact satisfied.” However, there are several possibilities for satisfying that requirement in 2017. For example, a committee could certify partial results for a partial vesting, e.g., 90% of the awards expected to be earned, at a December 29, 2017 telephonic meeting. The company then could make a “true-up” payment in early 2018. Additionally, companies that use a 162(m) umbrella plan approach may have easily satisfied the performance requirements set forth in the plan, which are necessary to create a sufficient incentive pool before December 31.
Some of the analysis behind this approach is a bit more complicated (lengthy) than the space for this blog. But it should be possible in most cases with the right process.