Tax Bill Alert: Welcome Relief as New Deferred Compensation Rule Also Deleted from Senate Bill

By David Gordon, Kenneth H. Sparling


Last night, Senate Finance Committee Chairman Hatch released the first amendments to the Senate’s version of the Tax Cuts and Jobs Act. 

Amendments related to executive compensation largely mirror changes that were made to the House version of the bill last week.  An important change was the deletion of new rules that would have taxed non-qualified deferred compensation (including non-qualified stock options) upon vesting.  This means non-qualified stock options will continue to be taxed upon exercise and Section 409A lives on to govern deferred compensation.

The Senate bill also now includes a provision (also in the House bill) allowing tax deferral for “qualified equity grants” at privately-held companies, potentially until the earlier of five years after option exercise/RSU vesting or IPO.

There were no changes to the bill’s modifications to Section 162(m), which call for elimination of the exception for “performance-based compensation” from the $1 million deductibility limit for compensation of certain senior executives.  

While the House and Senate bills remain subject to change, the recent amendments should be a welcome development for companies as it relates to planning upcoming equity awards.

Portrait of David Gordon, Managing DirectorDavid Gordon
Managing Director

Dave Gordon’s practice as an executive compensation consultant stretches back over a decade. He has covered a variety of industries, including extensive experience with financial institutions and utilities. In addition to engagements for his own clients, based on his years of experience as an executive compensation lawyer, he acts as the senior resource on numerous technical issues for the Firm. He frequently acts as an expert witness, where his prior background as a lawyer litigating executive compensation cases gives him a unique perspective when called upon to perform services as an executive compensation expert witness.

Portrait of Kenneth H. Sparling, PrincipalKenneth H. Sparling
Managing Director

Ken Sparling’s assignments have been with both public and privately-held companies in various industries. His consulting engagements focus on all aspects of executive and board compensation including annual and long-term incentive programs, employment agreements and change-in-control arrangements. Ken holds an MBA from University of Chicago and is an author and frequent contributor to the firm’s technical papers and studies.