Don’t Fly Blind with Your Executive Compensation Under the TCJA

Tax Cuts and Job Act (TCJA) Executive Pay

One often neglected area when employers review their current employee pay plans against changes under the Tax Cuts and Job Act (TCJA) is executive compensation.  Two types of remuneration in particular that are frequently used by employers to attract, retain and provide monetary performance incentives for their executives, c-suite and other top-level managers are affected by the TCJA and should be evaluated.

Stock Options and Restricted Stock Units (RSUs)

For a vast number of employers, granting an equity stake in the company is a benefit reserved for their executive workers and upper management. A provision in the TCJA seeks to encourage employers to extend this type of benefit offering to more employees than just those at the top, by requiring that specified tax benefits only apply for companies who offer stock options or RSUs to at least 80% of all full-time workers.  Under these new stipulations, all eligible employees (1% owners, former and current CEOs and CFOs as well as certain highly-compensated employees excluded) with stock options exercised or RSUs settled after December 31, 2017, will be granted a 5-year reprieve on tax liability for upon the employee receiving economic benefit when they gain access to the stock options or RSUs.

Excessive Compensation

Another matter involving executive compensation affected by the TCJA is the limits set on excessive compensation.  This applies specifically to public corporations and restricts an employer’s ability to deduct the cost associated with executive pay in excess of $1 million and now includes any performance-based pay as part of the total compensation subject to the $1 million limitation.  The TCJA also expands the definition of “covered employee” to add the CFO in addition to the CEO and top three highest paid executives (positions which were already included under the pre-TCJA regulations).  Individuals considered “covered employees” from any tax year after December 31, 2016, will also be included under the revised definition.

Attracting top-talent including executives and navigating ever-changing compensation and benefit rules and their effects on your company’s payroll processing can be a minefield.  If you need assistance including a unified HCM solution that helps you quickly and easily analyze pay for a specific individual or your entire workforce, we can help.

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