Csp Q21

Front 1

QBS 21: 1 and 2 of 21
Items need to to consider when designing an exec comp program
(1 and 2 of 2)

Back 1

1) What message regarding the program to be clear
2) Should be aligned with corporate values
3) How will it be perceived by the public
4) Is the program the result of an acceptable process in terms of compensation philosophy
5) How does your company compare its performance with other companies
6) Should balance short and long term incentives to reduce gaming
7) Make sure severance arrangement is reasonable
8) Make sure change-of-control triggered compensation aligned with corporate strategy
9) Make sure know the potential value of early retirement SERP benefits

Front 2

QBS 21: 3 and 4 of 21
Types of executive compensation
(1 and 2 of 2)

Back 2

1) Base salary
2) Short-term incentives
a) Bonus, function of salary and target
b) Metrics typically compare against peer performance
3) Annual bonus
4) Long-term incentives
a) Motivates longer term behavior
b) Typically some form of stock (options, restricted stock or stock appreciation rights)
c) Can base vesting on time and/or performance
d) Performance set by predetermined metrics
5) Executive benefits
a) SERPs
b) Split-dollar life
6) Perquisities
7) Deferred compensation
8) Severance

Front 3

QBS 21: 5 of 21
Items directors should consider regarding a company's compensation committee

Back 3

1) Has it thoroughly identified its duties and processes
2) Is it appropriately advised
3) Are there particular executive compensation issues that it should address
4) Does its procedures demonstrate diligence and independence
5) Is it appropriate communicating its deliberations
a) How will shareholders react

Front 4

QBS 21: 6 of 21
Decision making environment aligned toward awards that

Back 4

1) Are formula driven
2) Vest based on future performance
3) Impose post-employment riks of forfeiture

Front 5

QBS 21: 7 of 21
Methods of increasing retention through executive compensation

Back 5

1) Redirection of cash bonuses to long-term deferred comp or restricted stock
a) Should base initial award value on objective formula to increase objectivity
2) Impose forfeiture features
a) Vesting based on service, corporate performance or both
b) Deferral of payment after non-compete period expires
c) Deposit of cash-based benefits into rabbi trusts

Front 6

QBS 21: 8 of 21
To avoid the application of 409A, an option must

Back 6

1) Based on common stock of the employer
2) Exercise price is at least the FMV on grant date
3) Include no other deferrals features

Front 7

QBS 21: 9 of 21
Grandfathered benefit exempt from 409A

Back 7

- Benefits that accrued and vested before January 1, 2005
- Benefit provisions can't be materially modified after October 3, 2004

Front 8

QBS 21: 10 of 21
Material modification

Back 8

- A plan amendment or the exercise of discretion under the terms of the plan that materially enhance an existing benefit or right or adds a new material benefit or right even if the enhanced or added benefit would be permitted under 409A

Front 9

QBS 21: 11 and 12 of 21
409A broad conditions
(1 and 2 of 2)

Back 9

1) Elections must be made before the beginning of the year, except
a) Within 30 days of initial participation
- 30 days within the end of the plan year for nonelective excess plan
2) The time and manner of the payment must be specified up front
a) What events will trigger distributions
b) When they will begin
c) In what form they will be paid
3) The distribution must begin on a date fixed in advance, or triggered by one of the following events:
a) Separation from service
b) Death
c) Disability
d) Change in control
e) Unforeseeable emergency

Front 10

QBS 21: 13 of 21
Specifying the "date certain"

Back 10

- May be stated explicitly
- Something like when "Y corporation makes an IPO" is not okay

Front 11

QBS 21: 14 of 21
Special rule for specified employees

Back 11

- Specified employee is similar to a key employee, expect:
- Must work for a publicly traded company
- Must wait at least 6 months after separation before receiving anything

Front 12

QBS 21: 15 of 21
Specifying the distributions (timing and form)

Back 12

- Distributions may be paid on the earliest or latest of several events
- But can't allow discretion
- Distribution can be sated as not instantly follow triggering event
- Can have different forms of distributions for different events; for example
a) LS upon death and an annuity upon separation from service, or
b) Can base form on age, service or a combination if the event is a separation from service (must specify methodology up front)

Front 13

QBS 21: 16 of 21
Acceleration of distributions

Back 13

- Generally not allowed
- Exceptions
1) Impact of other laws
2) De minimis payments
3) Termination of the plan (payment made between 12 and 24 months of the termination date)

Front 14

QBS 21: 17 of 21
Postponement of distributions

Back 14

- Must be at least 5 years
- And does not become effective for at least 12 months after the election

Front 15

QBS 21: 18 and 19 of 21
Examples of the application of the 5-year rule
(1 and 2 of 2)

Back 15

- The distribution (e.g. LS) or annuity starting date delayed 5 years
- The LS may be split into installments or converted into an annuity
- Starting date needs to be delayed at least 5 years
- Can convert an annuity into a LS
- Subject to the same delay
- Installments
- If treat series as one installment then
- First installment is postponed and the rest are delayed correspondingly
- If convert to LS then must be paid at least 5 years after the original installment date
- If each installment is treated as a separate distribution then
- Each may be individually postponed

Front 16

QBS 21: 20 of 21
Conversions without 5-year requirement

Back 16

- Converting from an annuity to another annuity equal in actuarial value

Front 17

QBS 21: 21 of 21
Failure to comply; deferrals

Back 17

1) Are included as taxable income
2) Are subject to a 20% excise tax
3) Are subject to an interest rate penalty