Ayco’s Jonathan Barber—senior vice president, Tax Policy & Research—is a subject matter specialist in compensation and benefits. He recently shared his observations on the top five compensation trends that he is currently seeing in Corporate America. Is your company considering these compensation strategies?
Current compensation trends
Encouraging employees to review withholding in light of tax reform and the new 2020 W-4
Tax reform resulted in considerable changes to tax rates, exemptions and the itemized deduction rules. Employees need to review the impact these changes will have on their overall income tax liability to make sure they aren’t over- or under-withholding. The completely revised W-4 for 2020 uses new concepts in determining the proper withholding and is expected to be more accurate in accounting for the tax law changes.
Reviewing changes to executive compensation design given 162(m) changes
Employers must determine if the loss of the performance exception, among other key adverse changes to this deduction, will change the way they compensate executives going forward. They should evaluate how nonqualified deferred compensation plans can assist in preserving some of the deduction.
Favorable equity vesting provisions for employees meeting qualified retirement definition
Given the disappearance of defined benefits plans, favorable equity vesting provisions for employees meeting qualified retirement can help encourage better retirement decisions on the part of the employee.
Resurgence of incentive stock options (ISOs)
The combination of reduced corporate income tax rates making it less costly for an employer to offer ISOs—and the increased Alternative Minimum Tax exemption making such awards even more attractive to an employee from a tax perspective—will likely result in employers considering ISOs as a viable form of compensation to remain competitive and attract new talent.
Compensation clawback policies
Although we still await the finalization of clawback rules pursuant to Dodd-Frank, employers should carefully review such policies as to whether being proactive makes more sense than being reactive. Careful consideration of policy terms is needed to account for often unexpected consequences such as the ability of the employee to recover taxes paid, the application of company indemnification provisions, etc.
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