Compensating Executives in the Digital Age

Confero Spring 2018

Michelle Capezza, Member of the Firm in the Employee Benefits and Health Care and Life Sciences practices, in the firm’s New York office, authored an article in Confero, titled “Compensating Executives in the Digital Age.”

Following is an excerpt (see below to download a full version in PDF format):

One of the key drivers of any organization’s success is attracting and retaining the desired employees to execute the business objectives, support the mission, and build a productive workplace.  To attract and retain employees at the executive level, organizations must navigate additional layers of marketplace competition for the best talent and determine appropriate compensation incentives while managing scrutiny of such programs from regulators, the public and shareholders, just to name a few. 

There are many requirements impacting the design of executive compensation programs which have evolved in recent years, from changes ushered in by the Dodd Frank Act, to tax code rules for the deferral of compensation under Section 409A of the Internal Revenue Code (the “Code”), as well as other governance and entity-specific rules and regulations.   Most recently, The Tax Cuts and Jobs Act of 2017 (the “TCJA”) impacts compensation practices as it prohibits public companies from taking a tax deduction for executive compensation of covered executives in excess of $1 million and removes the performance-based compensation exception to the deduction limit that existed under Section 162(m) of the Code.  The TCJA also creates an excise tax regime for tax-exempt organizations with regard to excessive compensation of covered executives, among its other changes.  While the tax implications of compensation practices will continue to be a factor in compensation design, and many organizations are revisiting their programs in light of the TCJA, the overarching issue for organizations to consider is how to design compensation programs to attract and retain the necessary talent to manage their business and attain their organizational goals in the Digital Age while also staying in compliance of applicable regulatory requirements.

With generational shifts in workplace demographics, advances in technology and mobility, and rise in entrepreneurship, organizations must weigh a myriad of factors into their compensation design decisions in order to attract and retain its future leaders. …