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CCH® PENSION — 5/5/08

Senate Bill Would Impose Greater Restrictions On Executive Comp

From Spencer's Benefits Reports: Sen. Harry Reid (Nev.) has introduced the Corporate Executive Compensation Accountability and Transparency Act (S. 2866), which would require greater disclosure of senior corporate officer compensation; empower shareholders and investors to protect themselves from fraud; limit conflicts of interest in determining senior corporate officer compensation; and close corporate tax loopholes utilized to subsidize senior corporate officer compensation. The bill was referred to the Finance Committee.

S. 2866 would amend IRC Sec. 409A(a) to impose a $1 million annual limitation on the aggregate amount of compensation that could be deferred for any taxable year with respect to any participant in a nonqualified deferred compensation plan. If as a result of that limit an amount is includible in the gross income of a participant for any taxable year, any income (whether actual or notional) for any subsequent taxable year would be included in gross income in that subsequent taxable year to the extent that such income (a) is attributable to compensation (or income attributable to such compensation) required to be included in gross income by reason of such failure; and (b) is not subject to a substantial risk of forfeiture and has not previously been included in gross income. The bill would direct the Internal Revenue Service to issue transitional guidance providing a limited period during which a deferred compensation plan adopted before Dec. 31, 2008, could be amended to comply with the provisions of the legislation.

In addition, S. 2866 would amend the Sarbanes-Oxley Act of 2002 to replace the existing 12-month restriction on executive reimbursement of compensation for misconduct with a 36-month restriction. As defined by the bill, “misconduct” includes misconduct that results from (1) specific illicit actions of a company’s senior executive or officer, including the chief executive officer and chief financial officer, or knowledge of illicit actions, accompanied by willful inaction to address such illicit actions; or (2) the willful concealment by such executive or officer of illicit actions. The bill would further define an “illicit action” as including the backdating of stock options to conceal liabilities, losses, or any other negative financial information from shareholders and investors; accounting irregularities designed to conceal losses, liabilities, or other negative financial information; accounting irregularities designed to artificially achieve profit or other financial targets; and willfully circumventing the reporting, due diligence, disclosure, or fiduciary requirements of the law.

S. 2866 also would amend the Securities Exchange Act of 1934 to specify that any proxy or consent or authorization for an annual meeting of the shareholders (or a special meeting in lieu of the annual meeting) occurring on or after Jan. 1, 2009, must provide for a separate shareholder vote to approve the compensation of executives. The bill would require a similar shareholder vote to approve golden parachute payments in the event of an acquisition, merger, consolidation, or proposed sale or other disposition of substantially all of the assets of an issuer.

Furthermore, S. 2866 would direct the Securities and Exchange Commission to issue regulations clarifying and strengthening disclosure requirements for the compensation of consultants or advisers to a company’s compensation committee. The bill also would require federal contractors to disclose executive compensation structures.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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