Client Alert

Severance in the Spotlight: New Risks to Executive Contracts

June 06, 2005

Mark Poerio, Caroline Bruckner and Lynda Noggle

The pendulum has not stopped swinging against executives when it comes to their compensation. The past few years have seen the SEC clamp down on the disclosure side, and shareholders and attorneys-general react with litigation when abuses have come to light. Late last year, a landmark change in Federal tax laws targeted executives who defer compensation. Section 409A of the Internal Revenue Code now aims a 20% excise tax at certain executive severance arrangements – and that pales compared to two more risks that recently materialized.

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