CECP cheat sheet

Section 162(m) limits corporate tax deduction for covered employee compensation to $1 million; the 2017 Tax Cuts and Jobs Act repealed the performance-based compensation exception and expanded covered employees to include CFOs and certain former executives.

Section 409A governs nonqualified deferred compensation; violations trigger immediate taxation, a 20% additional tax, and interest. Good reason termination and change-in-control definitions must meet 409A safe harbors.

Section 280G disallows deductions for excess parachute payments and imposes a 20% excise tax on the recipient; excess parachute payment equals the parachute payment minus 1× base amount (five-year average W-2 compensation).

Section 4999 excise tax applies to excess parachute payments; a golden parachute payment is generally 3× base amount or more, triggering 280G/4999 consequences.

Equity compensation vehicles: stock options (ISO/NSO), restricted stock, RSUs, performance shares/units, SARs. ISOs have $100,000 annual vesting limit and AMT preference; NSOs are taxed as ordinary income at exercise.

Executive benefits often include SERPs, deferred compensation plans, supplemental life/disability, and perquisites; these are subject to 409A and often 162(m) deduction limits.

Clawback policies: SEC Rule 10D-1 and NYSE/Nasdaq listing standards require recovery of incentive-based compensation erroneously awarded due to accounting restatements; applies to current and former executive officers.

Say-on-pay votes are advisory (Dodd-Frank Section 951); frequency votes occur at least every 6 years; say-on-golden-parachute votes are required in connection with merger transactions.

Stock ownership guidelines and holding requirements are common governance tools; they specify multiples of salary to be held in company stock and are not legally mandated but disclosed in proxy statements.

Total rewards model includes compensation, benefits, work-life effectiveness, performance recognition, and development/career opportunities; it is broader than total compensation.

Total compensation = base pay + short-term incentives + long-term incentives + benefits + perquisites; total rewards adds intangible elements like culture and recognition.

Compensation mix (pay mix) defines the ratio of fixed to variable pay; higher variable mix is typical for sales and executive roles to align pay with performance.

Pay positioning strategy: lead (above market), match (at market), lag (below market), or hybrid; typically set at a percentile of the relevant labor market (e.g., 50th or 75th).

Job evaluation methods: ranking, classification, point-factor, and factor comparison; point-factor is most common for establishing internal equity.

Market pricing uses salary surveys; aging survey data requires trending (aging) by an economic index or salary budget increase percentage.

Compa-ratio = individual base salary / midpoint of salary range; range penetration = (salary - range minimum) / (range maximum - range minimum).

Benefits as part of total rewards: legally required benefits (Social Security, Medicare, unemployment insurance, workers' compensation) and discretionary benefits (health, retirement, paid time off).

Communication of total rewards: personalized total rewards statements show employees the full value of compensation and benefits; required for transparency and engagement.

FLSA exempt vs. non-exempt: exempt employees are paid on a salary basis, meet duties tests, and are not entitled to overtime; non-exempt must receive minimum wage and overtime at 1.5× regular rate for hours over 40 in a workweek.

Regular rate of pay includes base pay plus nondiscretionary bonuses, shift differentials, and other remuneration; it excludes discretionary bonuses and certain payments.

Overtime calculation for salaried non-exempt: hourly equivalent = weekly salary / total hours worked; overtime premium may be half-time if salary covers all hours worked.

Minimum wage: federal $7.25/hour; states and localities may set higher rates; employers must pay the higher applicable rate.

Pay frequency and timing are governed by state wage payment laws; final pay timing varies by state and reason for termination.

Garnishment: Consumer Credit Protection Act limits wage garnishment to 25% of disposable earnings or the amount by which disposable earnings exceed 30× federal minimum wage, whichever is less.

Pay equity laws: Equal Pay Act (federal) requires equal pay for substantially equal work; many states have stricter pay transparency and salary history bans.

Incentive plans: commission plans should be in writing and specify when commissions are earned; draw policies (recoverable vs. non-recoverable) affect cash flow and risk.

Salary structure design: number of ranges, midpoint progression (typically 15-20% between grades), and range spread (difference between min and max, often 40-50% for exempt roles).

ERISA governs private-sector employee benefit plans; it sets fiduciary duties, reporting and disclosure (Form 5500), and minimum standards for participation and vesting.

Qualified retirement plans (401(k), pension) receive tax advantages; 401(k) elective deferral limit for 2024 is $23,000 (plus $7,500 catch-up for age 50+).

401(k) nondiscrimination tests: ADP (actual deferral percentage) and ACP (actual contribution percentage) tests ensure highly compensated employees do not disproportionately benefit.

Highly compensated employee (HCE) for 2024: earns $150,000 or more (lookback year), or owns more than 5% of the company.

Vesting schedules: cliff (e.g., 3-year) or graded (e.g., 2-6 years); ERISA sets maximum vesting for employer contributions (3-year cliff or 6-year graded for matching; 5-year cliff for pension).

COBRA: continuation coverage for 18 months (longer for disability or second qualifying event); applies to employers with 20+ employees; requires timely election and premium payment.

FMLA: unpaid, job-protected leave for 12 weeks in a 12-month period for eligible employees (50+ employees within 75 miles, 12 months service, 1,250 hours).

Health plan mandates: ACA requires coverage of essential health benefits, preventive services without cost-sharing, and extends dependent coverage to age 26; employer mandate applies to 50+ FTEs.

Workers' compensation: state-mandated no-fault insurance covering medical costs and wage replacement for work-related injuries; benefits vary by state.

Paid time off (PTO) and leave: no federal mandate for paid vacation or paid family leave; some states (e.g., California, New York) have paid family leave programs.