Lastige nalevingskwesties voor bedrijven wanneer een leidinggevende zijn dienstverband beëindigt: overwegingen met betrekking tot de beloning van beursgenoteerde bedrijven

When an executive or other senior-level employee terminates employment, employers must address the tax, equity, and benefits issues that may arise in connection with the employee’s termination. If the employer is a publicly traded company, additional considerations relating to governance, disclosure, accounting, and tax often arise in connection with compensation actions and decisions. 

This article is the fifth (and final) in a series of articles that address important compliance pointers for structuring post-termination benefits or addressing issues and considerations for companies when an executive terminates employment. In our previous articles, we discussed whether the Employee Retirement Income Security Act of 1974 (ERISA) applies to executive severance plans, whether Section 409A of the Internal Revenue Code of 1986, as amended (the Code), applies to severance benefits, what to do about equity awards, and issues to consider before promising certain post-termination benefits to departing executives.

This month, we are discussing some of the unique compensation-related considerations that arise in public-company executive separations. 

Bestuur

For public companies with stock listed on a national securities exchange and whose officers are subject to Section 16 of the Securities Exchange Act of 1934 (Exchange Act), the company’s board of directors or its compensation committee may need to approve compensation actions for those officers, including such actions undertaken in connection with an officer’s separation:

• National securities exchanges generally require that the board of directors or a committee of independent directors, such as a compensation committee, approve the compensation of executive officers to ensure appropriate oversight of executive compensation by independent directors. This means that the board of directors or its compensation committee may need to approve any compensation actions taken in connection with an officer’s separation, including the provision of severance, entry into a separation agreement, post-termination consulting arrangements, subsidized health insurance continuation and similar benefits. 
• Any changes to the terms of equity-based compensation, such as a waiver of conditions or accelerated vesting, may need to be approved by the board of directors or its compensation committee to ensure that any transactions involving the company’s stock that are eligible for the exemption from the short-swing profits-matching rules under Section 16 of the Exchange Act for pre-approved transactions under Rule 16b-3 satisfy the pre-approval requirements. 

Openbaarmaking

If a separating officer is an “executive officer” (as defined by Rule 3b-7 under the Exchange Act) or an “officer” (as defined by Rule 16a-1(f) under the Exchange Act), a separation may require public disclosures. Given this article’s focus on compensation-related matters, this article will focus only on the potential disclosures that relate to compensation actions:

• A Form 8-K filing may be required within four business days if a company enters into a material compensatory arrangement with a Chief Executive Officer (CEO), a Chief Financial Officer (CFO), or another “named executive officer” (i.e., an executive officer whose compensation was subject to disclosure in the most recent proxy statement), or materially amends an existing compensatory arrangement with such an officer. For example, if a company enters into a separation agreement in connection with a named executive officer’s separation, or amends an existing employment agreement, a Form 8-K may need to be filed within four business days.
• Any separation agreement or other material compensatory arrangement entered into with an executive officer may need to be filed as an exhibit to the company’s quarterly or annual report on Form 10-Q or Form 10-K as a material contract under Item 601(b)(10) of Regulation S-K. 
• If the separating officer qualifies as a “named executive officer” whose compensation must be disclosed in the company’s next proxy statement, any compensation actions taken in connection with the officer’s separation may need to be discussed in the Compensation Discussion and Analysis section of the proxy statement. Any amounts paid in connection with the separation (or the incremental value of modified equity awards, as discussed below under Accounting) may also need to be included in the tabular compensation disclosure, including the Summary Compensation Table, in the proxy statement, and may need to be quantified as part of the disclosure of potential payments upon a termination.
• If the officer is subject to Section 16 reporting obligations (including the requirement to report transactions in the company’s stock on Forms 4), actions taken with respect to the officer’s stock awards or holdings in connection with the officer’s separation – particularly if such actions take place prior to the officer’s loss of Section 16 “insider” status – may trigger Form 4 reporting obligations. 

Boekhouding

If a company agrees to modify a separating officer’s outstanding equity awards in connection with the separation, the modification may affect the accounting treatment of the award under Accounting Standards Codification Topic 718. If such a modification results in an incremental fair value attributable to an equity award held by a separating named executive officer, that fair value may need to be disclosed in the Summary Compensation Table and Grants of Plan-Based Awards table in the proxy statement. 

Belasting

In addition to the tax-related considerations that arise in connection with the separation of any employee, certain executives with nonqualified deferred compensation may be subject to an additional timing requirement:

• Code Section 409A regulates “nonqualified deferred compensation,” and may require a six-month delay on payments of such compensation to “specified employees” of publicly traded companies if the payment is triggered by a separation from service.
• A complete discussion of the rules for identifying “specified employees” is beyond the scope of this article, but the category of “specified employees” may include (among other individuals) up to 50 of the most highly compensated officers of the publicly traded company, if their compensation for the relevant period was greater than an indexed threshold amount ($230,000 for 2025). 

Accordingly, if a separating officer has nonqualified deferred compensation that is subject to (and not exempt from) Section 409A of the Code and that becomes payable upon the separation, the payment may, unless an exception applies, need to be delayed until six months following the separation to avoid noncompliance with Section 409A of the Code. Noncompliance with Section 409A may result in the imposition of a 20% penalty tax as well as other adverse tax consequences.

Samenvatting

In summary, public company officer separations involve some unique governance, disclosure, accounting and tax considerations. In the case of a planned retirement, there may be adequate time to address many of these issues in a deliberative manner in the ordinary course of business.  Because officer separations can arise unexpectedly, however, it is prudent, even in the absence of any anticipated separations, to develop a plan to address these considerations quickly should the need arise. 

For additional information, please contact any of the attorneys in Foley’s Employee Benefits & Executive Compensation Practice.