Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value

Transcription

1 News You Can Use 1

2 Disclosures Neither Bank of America nor any of its affiliates provide legal, tax nor accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. Equity Methods LLC, NASPP, and Independent Stock Plan Advisors LLC are not affiliates of Bank of America Corporation. Bank of America Merrill Lynch is a marketing name for the Retirement Business of Bank of America Corporation ( BofA Corp. ). Banking activities may be performed by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A., member FDIC. Brokerage services may be performed by wholly owned brokerage affiliates of BofA Corp., including Merrill Lynch, Pierce, Fenner & Smith Incorporated ( MLPF&S ), a registered broker-dealer and member SIPC. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value Bank of America Merrill Lynch makes available investment products sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp. or in which BofA Corp. has a substantial economic interest Bank of America Corporation. All rights reserved. AR9PW3F6 2

3 Moderator: James Humza Director, National Sales Manager, Bank of America Merrill Lynch Panelists: Kathleen Cleary CEP Education Director, NASPP Geoffrey Hammel Managing Director, Independent Stock Plan Advisors Takis Makridis CEO, Equity Methods, LLC 3

4 Introduction Equity Methods Founded: 1998 Headquarters: Scottsdale, AZ Employees: 65 Equity Methods provides valuation, financial reporting, and human resources advisory services related to equity compensation and other complex securities. At Equity Methods, we believe in the power of equity-based compensation to advance a company s strategy. We tailor reports and the processes that produce them to your specific award types, compliance objectives, reporting requirements, and systems. Since 1998, we have assisted 35+ Fortune 100 companies and over 400 clients with their most pressing equity compensation valuation and reporting challenges. From pre-grant Monte Carlo modeling for relative TSR awards to end-to-end financial reporting, we re dedicated to supporting your efforts with insight, control, and expanded capability. Clients: 400 Service areas: Valuation, financial reporting, and human resources advisory The Equity Methods team is proud to be rated, for four years in a row, #1 in client satisfaction among financial reporting service providers. Source: Equity Methods, March,

5 Independent Stock Advisors, LLC Source: Independent Stock Advisors, March,

6 World s first and largest association for the equity and executive compensation professional community. naspp.com Leading provider of expert guidance, resources and education advancing the practice of stock plan professionals for more than two decades 6,000 members globally and 30 affiliated US chapters Attend the Premier Event in Stock & Executive Compensation. Register Today: NASPP.COM/NASPP26 6

7 Tax Reform Kathleen Cleary, CEP Education Director, NASPP 7

8 Tax Cuts and Jobs Act (Tax Reform) Individual Income Taxes Supplemental Tax Rates Alternative Minimum Tax Reduction of Corporate Tax Rate Private Company Incentive Plans 162(m) Source: IRS, December,

9 Individual Income Taxes IRS issued Notice 1036 updating tax withholding tables Still 7 tax brackets Lowest tax rate still 10% Highest rate lowered to 37% from 39.6% Standard deductions increased Single from $6,500 to $12,000 Married filing jointly from $13,000 to $24,000 Expanded the child tax credit Long term capital gains rates substantially the same as they were under the old tax laws 3.8% net investment income tax (part of the Affordable Care Act) still in effect Source: IRS, December,

10 Supplemental Wage Tax Withholding Supplemental withholding rates have been adjusted For wages below $1M, rate decreased from 25% to 22% For wages in excess of $1M, rate decreased from 39.6% to 37% If an employer withholds in excess of the maximum statutory rate, the award will be classified as a liability award, marked to market at each reporting period Source: IRS, December,

11 Alternative Minimum Tax For 2018, increased exemption amount From $55,400 to $70,300 for single taxpayers From $86,200 to $109,400 for married taxpayers filing jointly Phase-out exemptions raised From $123,100 to $500,000 for single taxpayers From $164,100 to $1,000,000 for married taxpayers Source: IRS, December,

12 Corporate Tax Rates Decreased from 35% to 21% Initiated remeasurement of deferred tax assets in the period of the enactment International Financial Reporting Standards (IFRS) considerations Challenges for non-calendar year companies Source: IRS, December,

13 Private Company Incentive Plans New category of equity awards Qualified Equity Grants Certain employees of private companies can defer recognition of income from option exercise or settlement of an RSU for up to 5 years after vesting Opportunity not available for ü Anyone who has been or acted as CEO or CFO ü Anyone who has been a 1% shareholder in preceding 10 years ü Family members of the above ü Any of the highest compensated officers for previous 10 years Company s shares have not and are not readily tradable on an established securities market Company maintains a written plan and at least 80% of full time employees receive grants Source: IRS, December,

14 162(m) Performance-based compensation exception eliminated Expanded definition of covered employee Includes CFO Any individual who was a covered employee at any time during the fiscal year Once a covered employee always a covered employee New rules don t apply to compensation subject to a written binding contract in effect at November 2, 2017 Reduces need for shareholder approval Source: IRS, December,

15 Regulations Affecting Equity Compensation Takis Makridis CEO, Equity Methods 15

16 CEO Pay Ratio Fallout and aftermath Media Investors Employees Lessons learned for year two Disclosure trends and patterns 16

17 Tax Reform and Executive Compensation Hypothetical Case Steady revenue & profit Profit drop in 2017 Deferred Tax Assets (DTA) write-down Modest rise in 2018 (lower taxes) Impact of Tax Reform Plan When are Goals Set? Earnings Decline (DTA) Write-Down) Earnings Boost (Lower Tax Rate) No Impact (Goals Set Post Reform) 2017 STIP January 2017 ü 2018 STIP January 2018 ü LTIP January 2015 ü LTIP January 2016 ü ü LTIP January 2017 ü ü LTIP January 2018 ü Source: Equity Methods, March

18 Accounting Standard Changes Aftermath of ASU ASU Non-Employee Accounting Changes Tax withholding Tax volatility (no more APIC pool) Forfeiture rate optionality Modification accounting simplification Limited scope Convergence with employee accounting Still some differences 18

19 Trends Geoffrey Hammel Managing Director, Independent Stock Plan Advisors 19

20 Tax Reform A catalyst for design change? Cash bonuses All employee grants Retreat from 162(m) Rebirth of ISOs 20

21 Questions? 21

22 Thank you! 22