As readers surely know by now, the Senate passed a Tax Reform Bill that is very similar to the bill already passed in the House. Both bills would eliminate the performance-based compensation exemption from Code Section 162(m) and extend the reach of the limitations under that Section to individuals and companies not currently covered, including some private companies. Large tax-exempt organizations will now face a similar limit. (Neither bill would touch Code Section 409A.) Most likely, virtually every large company in America will want to reconsider the structure of its executive compensation program for 2018 and beyond in light of these changes.
Some readers will have received our special alert from The Corporate Executive and The Corporate Counsel, titled “ ALERT: 162(m) Disclosures—What Companies Need to Do Now,” which focuses on the disclosure issues facing companies this year and in the future (subscription required).
Barring a miracle, the only issue yet to be resolved is the critical question of the breadth of the Transition Rule for plans and agreements in place as of November 2, 2017. Stay tuned.
We are also developing a variety of strategies for restructuring future compensation packages to reduce the impact of the elimination of the performance-based compensation deduction—in addition to other planning opportunities under Tax Reform (for example, see Follow-Up on Making Annual Bonus Payments Deductible in 2017 – 162(m)!). Much more to come on this subject as well. I’m afraid there will be a lot of unscheduled compensation committee meetings this month!