Executive Compensation

Although the feds continue to prosecute a few officers and directors who back-dated stock options and plaintiffs' lawyers continue their cases against the directors and corporations, the press generally seems to have lost interest in the topic. However, I thought I should mention one final coda to the whole fiasco from the Interal Revenue Service (IRS). In Internal Memo, AM 2009-006, the IRS concluded that a stock option whose exercise price was less than the fair market value of the stock at the date of grant ("discounted stock option") does not, and could not be modified to, qualify as performance-based compensation under Code Sec. 162(m)(4)(C), where the executive reimburses the employer for the excess of the fair market value on the date of grant over the exercise price (or the parties otherwise agree to an increased exercise price).

The IRS also reaffirmed its position, consistent with that of the Securities and Exchange Commission, that the grant date of a stock option is the date the granting corporation completes the corporate action constituting an offer of sale to an individual of a certain number of shares of stock at a fixed price per share.

No big surprise here.