Transitions in Employment

Archive for the ‘In the News’ Category

Whether promoted from within or from the outside, the new boss will need help to succeed.  By “getting on board” as a “team player” and becoming a strategic asset, you should create  personal career enhancement, rather than a premature termination.  See great article in The Wall Street Journal (March 6, page B8) by Joann S. Lublin, “How to Prove Your Worth to the New CEO.”

Hard to believe that the CFO of a public company felt the need to use social media to vent his frustrations about his employer, a public company. Not only did the CFO of Francesca’s Holdings Corp. use his Twitter account to vent about the company’s Board but he maintained a blog and a publicly viewable profile on Facebook. There is one word for this type of activity reminiscent of a recurring segment of the Weekend Update skit on SNL: REALLY!?

How is it possible that Yahoo hired its CEO Scott Thompson, missing the fact that he misrepresented his credentials – to wit, he claimed to have a degree in computer science when he did not?

How is it possible that one of the nation’s leading top executive search firms did not uncover this fact during its due diligence on behalf of Yahoo?

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What should we make of Greg Smith’s Op-Ed piece in today’s New York Times, “Why I Am Leaving Goldman Sachs“?  Is it the musing of a former leader who laments the changes which have occurred at a great financial institution or a parting shot from a disgruntled employee at his former employer?

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The compensation package of Eugene Isenberg, former CEO and now chairman of Nabors Industries, Ltd., including a proposed $100 million termination payment, illustrates the far extreme of executive compensation.  While institutional shareholders brought suit to challenge his compensation, wasn’t there due diligence before investments were made?

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Credit Suisse and Bank of America both recently announced changes in their annual bonus arrangements. Given the state of the economy and the cash crunch that many business are facing, companies are becoming more creative in the funding of these bonus arrangements – with a greater portion of annual bonuses are being funded in restricted stock or other investment vehicles. While these arrangements can sometimes provide a potential benefits to their recipients, knowing the details is critical.  Credit Suisse’s arrangement, for example, offers no upside to the executives and could theoretically (according to the Wall Street Journal) result in lower payouts.  Stock grants provide both potential increases and decreases in value, but often such shares are “restricted,” meaning that executives cannot sell these shares if things go bad and deferred stock arrangements can have unintended income tax liabilities associated with them.  As bonus arrangements become more complex and creative, executives will need to engage in more planning – financial, cash flow, and income tax – to properly manage their incentive compensation.

BofA’s New Twist on Bankers’ Cash Bonus

Credit Suisse’s Elaborate Bonus Ritual

David Harmon co-authored this post with Charles Bruder.

What does the dispute between MacAndrews & Forbes and Donald Drapkin, its former Vice Chairman, indicate to other executives who sign severance agreements? That company property should be returned and confirmation of such return should be obtained by the executive, that companies should have solid procedures in place to monitor the possession of confidential information by employees, and that post-employment obligations are enforceable — depending on how they are drafted and the particular facts of the case. This case should be interesting as it presents specific contract clauses and evaluates the conduct of the former executive. We will see what the jury finds regarding whether the company was justified in withholding payment under Drapkin’s severance agreement due to its claim that he failed to comply with his post-employment obligations, including returning company property and soliciting an employee.

Perelman’s MacAndrews Faces $18 Million Back-Pay Trial ‘About Fairness’

Great title for the Wall Street Journal‘s article “Wall Street Pay Gets Even Trickier to Figure” — executives be wary as company consider modifying deferred comp arrangements. If not done properly, IRS Code 409A liability can be triggered with the executive bearing the unintended financial responsibility.

This post was co-authored by Charles A. Bruder, a Member of Norris McLaughlin & Marcus and Co-Chair of its Executive Compensation & Employee Benefits Group. Charles is experienced in all aspects of defined contribution and defined benefit plans, deferred compensation arrangements, stock option plans, employee stock ownership plans, and other incentive and equity-based compensation arrangements.

According to the Wall Street Journal, Morgan Stanley plans to significantly reduce bonuses and will defer cash payouts over $125,000 until the end of 2012, noting that “[s]ome top executives will receive nothing now, deferring their 2011 payouts until the end of this year.”  Deferred compensation is becoming more prevalent in similar situations where companies do not have adequate cash on hand.

This, in fact, is a change of the compensation structure, which raises Section 409A concerns.  Adequate consideration has to be given to the labyrinth of Section 409A of the Internal Revenue Code — it has to be carefully navigated.

Keep in mind that if a portion of your compensation consists of deferred compensation, your employer may have a limited ability to change your payment schedule without entering into new plans and agreements.  While this modification addresses 2012 compensation, there may also be staggered deferred arrangements that pay out in the current year.  Since the IRS imposes the 409A tax liability on the individual, plans and agreements should be carefully reviewed.

Bonuses Are Sinking at Morgan Stanley

This post was co-authored by Charles A. Bruder, a Member of Norris McLaughlin & Marcus and Co-Chair of its Executive Compensation & Employee Benefits Group. Charles is experienced in all aspects of defined contribution and defined benefit plans, deferred compensation arrangements, stock option plans, employee stock ownership plans, and other incentive and equity-based compensation arrangements.

With Wall Street bracing for lower bonus payouts with respect to last year, it will be interesting to see how the firms structure the bonuses — cash vs. company stock?  We should see increased employee mobility, typical after bonus season.  In these unique times, it is always good to explore options and understand the documents you have signed with your employer.

While not always an available option, if practical, try to address bonus structure at outset of employment or when agreements are renegotiated.

Bank Pay to Be Lowest since 2008