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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
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Get Four
|  | OCTOBER 14, 2004
By Carol Marie Cropper Cracking Down on Deferred Compensation To stop Enron-style abuses, the new corporate tax law puts tighter restrictions on these payouts so officers don't take the money and run The corporate tax bill Congress passed Oct. 11 might be good news for American corporations, but not necessarily for the executives who run them. Embedded within the sprawling bill that, among other breaks, grants a tax cut for companies manufacturing goods within the U.S. is a section tightening compensation rules. Honchos with deferred-compensation plans now face measures designed to halt the sort of abuses seen when Enron was collapsing and execs were pulling out deferred-compensation money before it went bankrupt. Under the new legislation, executives who elect in advance to take their plan distribution when they leave a company will have to wait an extra six months if they're key employees, defined as an officer or anyone earning more than $130,000. Also gone: so-called "haircut provisions" that let execs take their money out at any time so long as they accept, say, a 10% penalty, as well as plans that automatically pay out if the company's credit rating slips below a certain level. In addition, the bill outlaws the foreign trusts some companies set up to hold deferred-compensation money. Such trusts make it harder for creditors to get to the otherwise vulnerable funds. (An executive with a deferred-compensation plan is treated as an unsecured creditor in a bankruptcy.) A 20% PENALTY. The law contains more mundane provisions as well. The new rule outlines how far in advance executives must decide what percentage of income they'll defer, under what circumstance distributions will be taken (the bill specifies six acceptable ones, including separation from the company and disability), and how the distributions will be paid out. Executives who want to defer compensation are now required to make their elections by the end of the calendar year prior to when the money will be earned, says Paula Todd, a senior executive-compensation consultant at consulting firm Towers Perrin. Those who don't comply are now subject not only to interest but also to a 20% penalty, says Bruce J. Shnider, a tax attorney with Minneapolis-based Dorsey & Whitney LLP. One area left unclear is how some types of equity compensation will be treated. While the bill specifically says traditional stock options won't be governed by deferred-compensation rules, it's uncertain how such variations as stock-appreciation rights, restricted-stock units, and discounted stock options will be treated. Looks as if the bill could be a boon for accountants too.  Cropper is a correspondent in BusinessWeek's Atlanta bureau Edited by Patricia O'Connell Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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