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SEC Proposes Rules to Implement Shareholder Approval of Executive Compensation and Golden Parachute Compensation
The U.S. Securities and Exchange Commission (Commission) recently proposed rules designed to implement Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Section 951 adds Section 14A to the Securities Exchange Act of 1934
Avoiding Restrictions on Nonqualified Stock Options and Stock Appreciation Rights (pdf).
Options to buy company stock (“stock options”) and rights to share in the appreciation of
company stock (“stock appreciation rights” or “SARs”) are a tax-advantaged way to reward key
employees without having to pay out additional current compensation. However, proposed regulations to
newly enacted §409A of the Internal Revenue Code impose restrictions on stock options and SARs.
Failure to satisfy §409A results in immediate taxation of the value of the stock options or SARs,
imposition of imputed interest, and a 20% penalty tax.
