Executive Compensation Planning: A Practical Guide to Designing and Protecting Executive Pay, Part 6: Practical Takeaways – Bringing It All Together

By: Angela M. Stockbridge

Throughout this series, we’ve examined equity compensation, the 83(b) election, deferred compensation, Section 409A and 280G compliance, employment agreements, and clawback requirements. In this final installment, we distill the key action items that companies and executives should keep at the top of their planning checklists. 

Executive compensation planning is not a one-time exercise. The tax rules are complex, the stakes are high, and the consequences of getting it wrong fall disproportionately on the executive. The following action items should be part of any company’s or executive’s ongoing planning process. 

•  Conduct a 280G analysis before signing any M&A letter of intent. The analysis is far more effective as a planning tool than as a closing-table crisis response.
•  Audit NQDC plan documents annually. Operating correctly under a defective document does not protect against 409A penalties.
•  Ensure employment agreements use best-net cutback language. Any agreement still containing a gross-up provision should be reviewed and updated.
•  Model the after-tax value of every compensation element. The gross number rarely reflects what the executive will actually receive.
•  File 83(b) elections within 30 days. There are no exceptions, and the opportunity cannot be recreated after the deadline.
•  Obtain a contemporaneous 409A appraisal for private company equity awards. A defensible valuation at grant is the foundation of stock option compliance.
•  Understand clawback exposure before accepting performance-based compensation. Recovery is mandatory for listed companies following a restatement, regardless of fault.
• Review executive compensation arrangements whenever an M&A transaction is contemplated. Change-in-control provisions, equity acceleration, and parachute payment exposure should all be analyzed early in the transaction timeline.
• Coordinate with tax counsel before accepting or negotiating any significant compensation package. The interplay between Sections 83, 409A, 280G, and state tax rules creates complexity that generic advice cannot address.

This concludes our six-part series on executive compensation planning. For help navigating the tax, compliance, and planning considerations of executive compensation, contact our Employee Benefits & Executive Compensation Practice Group. 

DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.