In General
In earlier posts, we described how a closely-held business may use a nonqualified deferred compensation (“NQDC”) plan to retain the services of, and to incentivize, a key executive employee. We also discussed the various requirements that such a plan must satisfy in order to successfully defer the inclusion in the employee’s income
A closely-held business will often use deferred compensation arrangements to induce or reward certain behavior by its key non-shareholder executives; for example, to incentivize the executive to attain certain business performance goals or operational benchmarks.
Such an incentive arrangement will defer the payment of compensation such as a bonus until the compensation is earned, usually
Yesterday we reviewed the IRS’s determination that a nonstatutory stock option (NSO) violated Section 409A. Today we will review the income tax consequences of such failure.
Income Inclusion under Section 409A
Section 409A provides that, if at any time during a taxable year a nonqualified deferred compensation plan fails to meet certain distribution-timing requirements, or
Incentive Compensation
It is not uncommon for a closely-held business to provide an economic incentive to its key employee. Often, the incentive takes the form of an annual cash bonus. Alternatively, the business may provide the key employee with a longer-term incentive, in the form of a deferred compensation arrangement that may be payable on
Nonqualified Deferred Compensation
In general, a nonqualified deferred compensation plan allows an executive to defer the “receipt” and income taxation of a portion of his compensation to a tax period after the period in which the compensation is earned (i.e., the time when the services giving rise to the compensation are performed).
The payment of
Our last post described the portions of an executive employment agreement that may be impacted by Section 409A. However, Section 409A may also impact the structure of other, less traditional compensation paid to key employees. In the context of a closely-held business, two commonly-encountered alternative compensation arrangements used outside of the context of an individual
Ask most closely-held business owners what words come to mind when they hear the names “Enron” and “Worldcom” and many would say things like “bankruptcy,” “failure,” “scandal” and “greed.” Ask those same business owners what impact those two names had on the ways they are able compensate their key employees and most would likely say
“Call it what you want, incentives are what get people to work harder.” — Nikita Kruschev
Most of our clients are closely held, often family-owned businesses. The current owners may be the founders of the business, or they may be a generation or two removed. Sometimes, the owners have children who are active in
For many executives, the 2013 tax year began with an increase in the marginal federal income tax rate applicable to their compensation, from 35% to 39.6%. It also saw the expiration of the temporary payroll reduction for the employee’s share of OASDI, which consequently increased from 4.2% to 6.2%, plus an additional 0.9% increase