2024 End-of-Year Plan Sponsor Checklist for Executive Compensation

2024 is quickly coming to a close, and it’s time to tackle some essential tasks if you’re involved in executive compensation. As we wrap up the year, we’re outlining a few key things you might want to consider in this final stretch of 2024 or as you head into 2025.

First up on our agenda is addressing any Section 409A document failures that may have cropped up this year. While not explicitly covered in the regulations, some experts suggest that these failures can be fixed in years where the deferred amounts are still unvested. If you’ve discovered any document issues in 2024, now’s your chance to correct them before December 31st without facing taxes and penalties.

Another important item on the list is making deferral elections for nonqualified deferred compensation plans by December 31, 2024. Remember, Section 409A has strict timing requirements for these elections, so be sure to get it done before the end of the year.

The Tax Cuts and Jobs Act made some changes to Section 162(m) of the Code, affecting how covered employees are defined. If you’re with a public company and are planning to adopt or amend equity-based compensation plans in 2025, make sure to review and update your plan to reflect these changes.

It’s also crucial to check if your equity-based compensation plans have enough shares remaining for upcoming awards in 2025. If you’re running low, consider seeking shareholder approval for an increase at your 2025 annual meeting.

Public company employers should take a close look at their director pay practices in light of ongoing scrutiny from Institutional Shareholder Services Inc. (ISS). ISS emphasizes the importance of clear, understandable limits on director pay, especially concerning equity awards. Be prepared to make any necessary adjustments to stay in compliance.

By January 31, 2025, companies must file information statements under Section 6039 of the Code for certain stock transfers related to ISOs and ESPPs that occurred in 2024. Keep this deadline in mind to ensure you meet all required disclosures.

Lastly, remember the Securities and Exchange Commission’s clawback rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Familiarize yourself with these requirements to avoid any compliance issues down the line if a clawback policy is triggered.

As you wrap up 2024 and prepare for the new year, staying on top of these executive compensation tasks can help ensure a smooth transition and compliance with all relevant regulations. If you have any questions or need assistance, feel free to reach out.