Published: December 2016Contents
i) What are the hot topics?
The goal of executive compensation design is to maximise the incentives for management to advance the interests of the corporation and its various stakeholders. The design of executive compensation, and thus the incentives provided, can be materially impacted by tax, disclosure and corporate governance rules. These will vary over time, and between jurisdictions and industries, for various reasons. Most notably in the current global environment, issues of risk mitigation are hot topics in the financial services industry. Issues of tax equity, especially relative to the treatment of rank and file employees but also from a fiscal perspective, are prominent for public company executives in many jurisdictions. Finally, issues of governance and transparency, and particularly the proper roles of shareholders and the board of directors in regard to executive compensation, continue to be hot topics in many jurisdictions.
ii) Tell us about any key legal developments – recent or pending – and their international impact.
The principal cross-border legal developments affecting executive compensation since the global financial crisis of 2008 have concerned the regulation of compensation in the financial services industry. The focus on that issue arose from the perception of many that compensation plan design contributed to the crisis by incentivising executives and other employees in that sector to take excessive risk. Global banking regulators have coordinated, pursuant to direction from the G20 group of governments, to prescribe comprehensive rules and regulations for the sector. Important portions of those rules continue to be subject to debate. For example, the Brexit vote in the UK has reopened the possibility that aspects of the EU rules that were not favoured by the UK, such as a bonus cap, may be revisited. In addition, re-proposed rules in the US that took a substantially more prescriptive approach than prior principles-based guidance are currently being considered.
iii) What are the biggest opportunities and challenges for practitioners and clients?
The biggest opportunities and challenges arise from the complexity of the rules governing executive compensation. The multitude of regulatory requirements, including numerous tax rules and regulations, create a legal framework that provides both opportunities for creative plan design and a minefield for practitioners. Successful practitioners must be knowledgeable in a broad range of legal disciplines – including tax, securities laws, corporate law, employment law and various regulatory regimes – in order to be effective. Companies that can most effectively and efficiently design incentive compensation plans that attract and retain top talent, and incentivise them to work in the long-term interest of the corporation and its various stakeholders, will have an important competitive advantage.
Baker McKenzie Melbourne
Baker McKenzie Sydney
DLA Piper Hong Kong
DLA Piper Shanghai
Cleary Gottlieb Steen & Hamilton LLP Frankfurt