Ninth Circuit Holds That SOX Disgorgement of Incentive Compensation Does Not Depend on Executives’ Own Misconduct

The U.S. Court of Appeals for the Ninth Circuit held today that the Sarbanes-Oxley Act’s disgorgement provision – which requires disgorgement of certain CEO and CFO compensation when an issuer restates its financial statements “as a result of misconduct” – applies even if the CEO and CFO were not personally involved in the misconduct. Although several district courts had previously reached that conclusion, the Ninth Circuit’s decision in SEC v. Jensen appears to be the first appellate ruling on the issue.

The Ninth Circuit also held in Jensen that the SEC’s Rule 13a-14 – which requires CEOs and CFOs to certify the accuracy of the issuer’s financial statements – provides the SEC with a right of action against officers who certify false or misleading financial statements. Read More

Tight Labor Markets Produce Gains In Compensation, More Or Less

By: William Dunkelberg, Contributor Forbes

Sluggish labor compensation growth, in particular wage growth, has been one of the Federal Reserve’s major concerns. This is a concern because the Fed links rising wage costs with subsequent inflation, which it is trying to produce, with a target of 2 percent growth in the PCE deflator. The thinking apparently is that without rising labor costs, firms will not raise prices and the desired inflation will not appear. It would also be the case that if strong wage growth spurred stronger spending, which pressed against the supply of goods and services, and provided opportunities for firms to raise prices, inflation might come to life.

Labor’s share of National Income has been depressed in this recovery from 2009-present, even though the unemployment rate has declined to “full employment” levels. Wages and prices have not risen substantially as is typically the case at “full employment” (or “maximum employment”). One reason for this is the decline in productive activity. As the percent of the adult population with a job has declined from 65 percent in 2000 to 59 percent today, there are a lot fewer wage earners relative to the population and the size of the business sector. Prior to 2008, labor share of National Income was low during periods when the percent of owners reporting price hikes was roughly equal to the percent raising compensation, thus passing labor costs on to customers. However, the Great Recession ushered in a period of declining labor share that appears stubbornly permanent even though half of the decline is due to a significant change in the way the BLS computes labor share. Read More

Why Big Banks Are Putting Caps on Director Salaries

And why the move doesn’t satisfy critics of banker pay.

Over the past two years, a growing number of U.S. banks has capped their directors’ earnings, but the ceilings are so high that they primarily serve to fend off potential shareholder litigation rather than control the pace of pay increases.

Most of the caps are typically 2-3 times what directors now get paid, according to data and filings reviewed by Reuters. Read More

Deferred Compensation: What Non-Profit and Governmental Employers Need to Know About IRS Guidance on Section 457

National Law Review

There has been a lot of buzz recently about the long-awaited proposed rules issued by the Internal Revenue Service under Internal Revenue Code Section 457. Section 457 only applies to non-profit and governmental employers and is unusual because Section 457(f) can result in an employee being taxed on compensation or benefits prior to actually receiving them! While Section 457(f) comes into play primarily with respect to deferred compensation, it also applies to benefits such as severance pay, disability pay, death benefits and sick and vacation leave.

What is Section 457(f)?

Section 457(f) applies to all “deferred” compensation except compensation that is deferred under a Section 457(b) “eligible” deferred compensation plan or a Section 457(e) “bona fide” severance, disability, death benefit, and sick leave and vacation leave plan. 

Section 457(f) provides that an amount of “deferred” compensation will be taxed to the employee at the time it is no longer subject to a substantial risk of forfeiture.  This is true even though the employee may not receive the compensation until a later year. Read More

Procter & Gamble CEO Taylor Compensation Soars to $14 Million

A Procter & Gamble Co. incentive program with some unconventional measures meant extra cash for top executives after year in which the company missed sales and profit growth targets.

David Taylor, chief executive since November, was awarded a $2.5 million bonus for the fiscal year ended June 30, according to a proxy statement filed Friday. He received total compensation of $14.4 million for the year.

The maker of Tide and Pampers has long awarded executives based on typical corporate metrics such as sales growth, market share and per-share earnings. Last year, P&G added a "transformation factor" that rewards executives for initiatives that drive the Cincinnati company's restructuring, such as overhauling the supply chain, improving cybersecurity and streamlining the product portfolio. Read More

Apple CEO Tim Cook Sells $36 Million From Block of Compensation Stock

Apple Inc. Chief Executive Tim Cook this week reaped the biggest chunk so far of the mega-stock grant he received when was named CEO in 2011.

In a Securities and Exchange Commission filing on Friday, Mr. Cook said he had received 1.26 million shares of Apple stock, valued around $135 million, that previously were restricted. He now has hit the halfway point of a stock-compensation plan that could see him awarded seven million shares by 2021.

Mr. Cook earned the bulk of the shares—980,000—by remaining CEO for five years. He earned the additional 280,000 shares because Apple stock outperformed more than two-thirds of the companies in the S&P 500-stock index over the past three years. Read More

How Apple's Nifty Compensation Tweak Saved Tim Cook's $373 Million Payday

Shareholders thought the change would make Apple’s CEO more accountable. It hasn’t.

When it comes to executive compensation, it appears Apple doesn’t think all that differently from the rest of the Fortune 500.

This week, Tim Cook celebrated his 5-year anniversary as CEO of Apple AAPL -0.81% . And he did it by receiving a big payday.

Alan Johnson, a top compensation consultant who is no stranger to big pay packages—he specializes in working with Wall Street—says Cook’s huge anniversary haul shows that something is broken at Apple. “It looks like Apple’s compensation committee went for a quick cop-out, and that’s what they probably did,” says Johnson. Read More.

CEO of EpiPen Maker Mylan Sees 671% Compensation Increase In 8 Years

Mylan Pharmaceuticals gained notoriety on par with Ryan Lochte with back-to-school news stories of its epic price hike on the EpiPen, a device that provides calibrated delivery of epinephrine in the case of anaphylaxis. Reports cited a 400% price increase for the devices, with families carrying high insurance deductibles bearing the greater burden to access a lifesaving, accurately calibrated bolus of epinephrine worth about $1.

From 2007, when Mylan MYL -0.21% took on the autoinjector, the company built it from an apparently weakening enterprise into a pile of money that reportedly represents about 40% of its operating profits. But that 400% increase in wholesale price for EpiPen looks meager compared to the whopping 671% salary increase company CEO Heather Bresch is reported to have enjoyed in that same time period. Read More

FINRA Proposes Revisions To Gifts, Gratuities And Non-Cash Compensation Rules

On August 5, 2016, FINRA in Regulatory-Notice 16–291 proposed revisions to its regulation of broker dealer gifts, entertainment and non-cash compensation (the "proposal") and requested comments to the same. The comment period expires on September 23, 2016.

The proposal would consolidate FINRA's regulation of gifts, gratuities and non-cash compensation into a single FINRA rule series; increase the current gift limit to $175 per recipient, per year; amend FINRA's non-cash compensation regulation to cover sales of all securities products; and consolidate certain interpretive guidance into the proposed rules, among other changes.2 The proposal would amend FINRA Rule 3220 (the "Gifts Rule") and create FINRA Rules 3221 (Non-Cash Compensation) and 3222 (Business Entertainment). Read More

Gravity Payments' $70K minimum salary: CEO Dan Price shares result over a year later

It's been nearly a year and a half since CEO Dan Price announced plans to slash his roughly $1 million salary to $70,000, also making that the minimum salary for all the employees at his credit card processing company, Gravity Payments. The move shocked the business world and thrust the 32-year-old into the spotlight.

Since then, a lot has changed. After the initial flurry of praise — and then resumes, of course — there was the inevitable criticism: Was this all really a clever publicity stunt?

Looking back, Price insists it wasn't. But he also knows the experiment was, at least in part, a deliberate business move.  Read More

NASDAQ Requires Disclosure About Director Compensation From Third Parties

Dykema Gossett PLLC - Robert B. Murphy and Mark A. Metz

The rise in shareholder activism has resulted in the addition of a significant number of new directors to public company boards who receive, in addition to the public company’s standard director compensation, additional compensation from the activist shareholder who sponsored their appointment to the board. In response to recent concerns relating to the potential conflicts presented by such compensation and the lack of relevant disclosure, Nasdaq recently implemented a new rule requiring disclosure of these “golden leash” arrangements for companies with securities listed on Nasdaq. Effective August 1, 2016, each Nasdaq-listed company is required by Rule 5250(b)(3) to disclose annually, in its proxy or information statement in connection with its next shareholders meeting at which directors are elected or on its website, all compensation or other payments by third parties to any nominee or director in connection with their candidacy for or service on the company’s board of directors. Read More

Time to Review Your Deferred Compensation Agreements - IRS Issues Proposed Regulations on Section 409A

The IRS recently released proposed regulations regarding the application of Internal Revenue Code Section 409A to nonqualified deferred compensation plans (“NDCP”). The proposed regulations modify and clarify previous guidance. The proposed rules will not be applicable until issued as final, but the IRS explained that taxpayers may now rely on the proposed rules and the IRS will not assert positions that are contrary to the position set forth in them. This summary highlights many of the important issues raised in the proposed rules.

Background

Section 409A provides that, to the extent that certain requirements are not met, amounts deferred under a NDCP for current and prior tax years that are not subject to a substantial risk of forfeiture and were not previously included in income by the taxpayer are currently includible in gross income. Amounts deferred in violation of Section 409A are generally includible in the service provider’s income and subject to a 20 percent additional tax plus interest. Read More

CEO Compensation Declined in 2015, New Mercer Study Finds

Mercer’s latest analysis of compensation for CEOs in the S&P 500 reveals that total direct compensation declined from a median of $10.6 million in 2014 to $10.3 million in 2015. This decrease – the first in at least five years – is primarily attributable to lower short-term incentives, which fell from $2.0 million in 2014 to $1.9 million in 2015, the smallest payout relative to target since 2011. The lower pay also tracks a decrease in median revenue among the companies, from $9.7 billion in 2014 to $9.4 billion in 2015.

“When revenue goes down, profit metrics are likely to be affected,” said Ted Jarvis, Mercer’s Global Director of Executive Rewards Data, Research and Publications. “Since virtually all companies incorporate profit in some form in their short-term incentives, it stands to reason that payouts associated with these metrics would be reduced.”  Read More

The Fluctuating Workweek Approach to Compensation – It Could Save You Money!

With the new, increased salary requirements set to take effect later this year for exempt employees, many employers are asking how they might reduce their overtime obligations. One possible approach is the fluctuating workweek method of compensation. However, prior to implementing such an approach, employers would be wise to seek guidance from counsel because the fluctuating workweek method comes with its own potential challenges, and it may not be permissible under some state overtime laws, such as the California Labor Code. Read More

Compensation for corporate board members continues to climb

The Washington Post

The people who sit on the boards of America’s largest corporations got a modest raise last year. Corporate directors at Fortune 500 companies saw a 3 percent increase in their total direct compensation for 2015, rising to a median $263,500, according to a new report from the advisory firm Willis Towers Watson.

Over the past decade, there has been a cumulative increase of 65 percent. Compensation experts say this reflects the expanding pressures on corporate directors, who must advise increasingly complex global corporations and take on more risk in the face of rigorous governance standards. Read More

Healthcare Executive Compensation Plummets 13%

While executive pay sunk, compensation growth for nurse practitioners and physician assistants outpaced that of physicians from 2015 to 2016, survey data shows.

Increasing demands on the healthcare industry make it a job seekers' market, with physician assistants and nurse practitioners in particularly high demand, according to Health eCareers' 2016 Healthcare Salary Guide.

In fact, compensation for NPs and PAs has risen more than that of physicians from 2015 to 2016, the survey of 19,754 healthcare professionals reveals, while healthcare executives and nurses have seen a decrease. Read More

What do employees think of CEO compensation?

By: Kevin Modelski

CEO compensation packages didn't always turn heads like they do today.

According to a PayScale Inc. report, at 168 companies with annual revenue of $1 billion, the average ratio of CEO-to-worker pay or more stood at 70-to-1 in 2015. In 1965, that ratio was 20-to-1, according to a 2015 report from the Economic Policy Institute.

Starting in 2017, the Dodd-Frank Act will require all publicly traded companies to publish their CEO-to-worker pay ratio. PayScale, an online salary, benefits and compensation information company, worked with Equilar, a company that provides information on executive compensation, to find out this metric for the highest-paid CEOs in the country. Read More

Making Sure Your Owner Compensation Is Reasonable

By: Steve Parrish

A term that is frequently bandied around in business tax circles is “reasonable compensation”.  For owners and entrepreneurs this term may seem unnecessary when talking about their own compensation.  Reasonable compensation should be whatever the owner feels he can afford to pay himself, right?

Unfortunately, other parties may have a say in how this term is defined.  A major party in interest is the IRS. Compensation paid to an owner/employee is a corporate distribution.  And how these distributions are defined affects how they are taxed by the IRS. Read More

A County's Self-Inflicted Compensation Crisis

By Charles Chieppo

Officials in Maryland's Montgomery County gave unionized workers — and themselves — big raises. Now they can't afford them.

Government-workforce politics have gotten very interesting in Maryland's Montgomery County, which includes a number of affluent Washington, D.C., suburbs. Unions are unhappy because their negotiated pay raises were unilaterally trimmed by the county council and because one council member has proposed changing the county's collective-bargaining laws in ways that don't sit well with labor. Meanwhile, homeowners are unhappy because of the biggest property-tax hike in seven years.

When you sort it all out, one-party government might just be a big part of the problem.

As chronicled in the Washington Post, the $5.3 billion budget the council approved in May included a nearly 9 percent property-tax hike that adds $326 annually to the average residential tax bill. The budget also increased a tax on recording real estate transactions that raises the cost of buying or selling a $500,000 house by $455. Read More

Fair Labor Association Reports Compensation Figures for Factories in 21 Countries

Today, the Fair Labor Association (FLA) released its first annual compensation report, publishing data on the earnings of workers in 124 mostly apparel and footwear factories assessed by the FLA in 2015. This first-of-its kind collection and publication of wage data and analysis is part of a commitment by the FLA and its affiliates to improve compensation for workers in global supply chains.    

For each factory where FLA assessors collected compensation data, the FLA has produced a chart depicting how much workers are earning, compared with other local benchmarks, such as the legal minimum wage, World Bank poverty levels, and cost-of-living figures developed by governments, unions, non-governmental organizations (NGOs) and others. Intended to place workers' compensation in a local context, these "wage ladder" charts provide a snapshot of workers' purchasing power at current compensation levels in each of the 21 countries where FLA assessors collected data. 

At the four factories assessed in Bangladesh in 2015, the FLA found average compensation (including benefits and incentives, and excluding taxes, legal deductions, and overtime) fell below the World Bank poverty line for a three-adult-equivalent household. Compensation for workers in assessed facilities in Cambodia, the Dominican Republic, India, the Philippines, and Sri Lanka (and for migrant workers in Jordan) averaged above World Bank poverty lines, though the FLA found that purchasing power of compensation for these workers remained relatively weak in these countries. Average compensation was found to be highest relative to the World Bank poverty line in the 14 factories assessed in the United States. Read More