Few Will Benefit From Narrow Exec Comp Transition Tax Rule

William Woolston is quoted in Law360 regarding recent IRS guidance on tax deduction for performance-based executive compensation. Mr. Woolston says of grandfathered contracts, “I think it’s fair to wonder just how many companies will be able to take advantage of the grandfather rule. It’s still new guidance and there’s still more to come and more thinking to do about it, but at first glance it may be tough for companies to have their arrangements be eligible for the grandfather rule.” He adds that compensation committees have the discretion to decrease performance-based pay by saying, “I suspect a lot of states don’t have settled case law that’s directly on point of these types of issues. So you may have situations where companies are looking to different state laws to try to come up with a right answer or at least a reasonable answer as to whether or not it’s a written, enforceable binding contract. The example seems to suggest a strict interpretation of that and how negative discretion could act. It puts companies in a tight spot because negative discretion is in a lot of these arrangements, because people were incentivized to put it there, and from a governance perspective, it’s a good thing to have.”