Sacramento Executive Compensation Lawyer

Sacramento Executive Compensation Attorney

It can be difficult to navigate putting together a desired compensation plan, let alone trying to determine what types of compensation are right for you. With such a complex process, it can be helpful to have the aid and guidance of an experienced Sacramento executive compensation lawyer, such as those at Peterson Watts Law Group, LLP.

Our attorneys in Sacramento, CA are experienced with business law and company and employee relationships. Having handled many executive compensation cases in the past, we can help you navigate this process in a way that supports all that you bring to the table and helps to ensure that you are fairly compensated for your hard work.

What Is Executive Compensation?

Executive Compensation refers to the combination of financial and non-financial benefits that an executive receives for their work. Individuals who receive this type of compensation can include company presidents, CEOs, CFOs, COOs, vice presidents, and managing directors.

A CEO is the highest position one can hold at a company, and they will, therefore, receive a larger compensation package than other executives. CFOs manage the financial aspects of a company, while COOs answer to CEOs and assist them in making important decisions and creating strategies.

Executive compensation can be given in many forms, including cash, stock, and deferred compensation. In short, it is a way for companies to provide benefits for their leaders in response to their exceptional service to the company.

Types of Executive Compensation

Executive compensation can take many forms. Individuals can negotiate with their company to obtain the ideal types of compensation to fit their needs and lifestyles. Some of these options include:

• Cash compensation. With cash compensation, executives can pay for almost anything they want. Cash can be used to pay off debts or mortgages, buy property or materials, put toward vacations, give to charity, or invest somewhere else. The flexibility this option offers has contributed to its long-standing popularity.
• Stock options. Many companies offer the chance for their employees to gain a portion of their stock at a certain price during a set amount of time as part of their compensation. This may be stock that is only open for employees to purchase, or it may be open for anyone to purchase. Depending on the type of stock you acquire, there will be various rules regarding taxation and the ability to exercise the stock. This is one example of a confusing area in which an experienced attorney can be of great help.
• Deferred compensation. This is a method of receiving compensation that you can use at a later date. These funds are set aside to be used later and cannot be used when they are received. Some executives use these funds as a type of retirement plan.

The Ethics of Executive Compensation

There has been much debate through the years concerning the topic of executive compensation. Some believe that the extravagance reflecting the compensation of most company executives is unethical and immoral.

However, executives and other leaders of a company have a difficult, stressful job to do and require certain incentives to maintain a long tenure. When an executive’s pay is directly affected by the well-being and growth of the company, they will be more likely to perform well because their performance, in turn, affects their paycheck.

The Role of Executive Compensation in Private Equity-Funded Companies

While much of the conversation around the topic of executive compensation relates to public companies, it is relevant to private equity-funded companies as well. A private equity-funded company is a business that has been invested in by a private equity firm. These private equity firms can provide financial backing for companies that are smaller or just starting out, with the goal of helping them expand their business.

In some cases, private equity businesses offer long-term incentives that are relevant to the timeline of the investment they have been given. This encourages executives to work hard because their compensation is directly related to the growth of the company.

What Are Compensation Committees?

Compensation committees can be responsible for putting together an executive compensation plan and package. They may also contribute to advising the board of directors on what goes into the package. These committees are often made up of members from the board who come together to contemplate the ideal compensation for senior management. There are three main responsibilities of a compensation committee, including:

1. Advising. This committee is responsible for staying up-to-date on what is fair and just compensation for those in the specific roles that will be receiving the compensation packages.
2. Critical and strategic thinking. While the committee is responsible for finding the optimal and fairest package for the executive workers, they are also responsible for making sure that the company continues to grow at the same time. In most cases, granting the right compensation package can directly contribute to the growth of the company.
3. Administration. This committee is not only responsible for doing research and constructing an informed plan of action but also for sharing how they came to their conclusions with the rest of the board of directors.

Taxes and Executive Compensation

The tax impact of your executive compensation will be different depending on what type of compensation you receive. The effects of taxes on separate types of compensation are listed below.

• Cash compensation: This type of executive compensation will be taxed normally, as any other type of salary or cash compensation would be.
• Incentive stock options (ISOs): Taxes for this type of executive compensation will vary based on what you do with it. ISOs typically come with vesting conditions, which are requirements that must be met prior to receiving assets or equity.
• Restricted stock awards: This stock is taxed at vesting, which means that there is no stock when it is initially issued to you. However, sometimes, a certain number of shares will be sold upfront to take care of tax withholding. In this case, only the value of your actual shares would be considered for tax. After the vesting period, you must have met certain conditions determined by the company to receive the shares. Otherwise, they will be forfeited.

How Can an Executive Compensation Lawyer Help?

There are many ways in which a qualified lawyer can assist you through the process of negotiating compensation. In these circumstances, there is often paperwork that may contain language that is lengthy and exhausting to attempt to fully comprehend. A lawyer can help you sort through this and ensure that you understand everything you agree to.

A lawyer can also bring options that you may have but are unaware of to your attention. At Peterson Watts Law Group, LLP, you can find attentive and experienced lawyers who are ready to guide you to a favorable compensation package.

FAQs for Compensation Attorneys

Q: What Is a Major Concern That Executive Compensation Involves?

A: One of the main concerns with executive compensation is its debated morality. Many argue that granting such significant pay and benefits to those on the top is unfair and excessive. Others, however, would argue that it is important to reward those who are carrying the heavy load and stress of running a company in order to encourage a long tenure, thereby building up the company’s stability.

Q: What Are the Ethical Issues of Executive Compensation?

A: One of the main ethical issues that is often considered in relevance to executive compensation is whether or not the compensation provided always matches the responsibilities and workload. There are ways of compensating executives, such as with stocks, that have the potential to benefit the entire company. However, some believe the ratio of workload to compensation should be more conservative.

Q: What Is an Example of Executive Compensation?

A: There are many examples of executive compensation because it comes in many forms. These include cash, deferred compensation, an array of stock options, and others. There are advantages and disadvantages to all of these options. For example, some are taxed, and some can be used right away, while others cannot. When negotiating an executive compensation package, it is helpful to seek one that fits you and your specific lifestyle.

Q: How Does Say-on-Pay Affect Executive Compensation?

A: Say-on-Pay is a vote in which the investors of a company vote on the compensation of the highest executives. Companies have a significant amount of flexibility when it comes to these types of votes. They have the ability to extend a great or small amount of decision-making power to the investors. For instance, the investors may only be able to approve an executive compensation amount that has already been brought forth. However, this is a non-binding resolution.

Contact an Executive Compensation Attorney

Negotiating for executive compensation is no simple matter. Because it involves legal and financial jargon, many facets of decision-making, and multiple steps that must be taken throughout the process, it can be helpful to have a lawyer who has worked with executive compensation cases before. If you are in the Sacramento area and in need of a lawyer, contact Peterson Watts Law Group, LLP, today to learn more about how we can be of service.