Recently, ExeQuity Senior Advisor Ed Hauder published a blog on potential legal pitfalls stemming from the changes in the tax code to 162(m) and company equity plan proposals in this year's annual meeting. According to Mr. Hauder, a client of his is a fiscal year company which filed its proxy in early 2018 and requested shareholder approval for both the short and long-term incentive plans. Among the justifications given for seeking shareholder approval by the company was to qualify compensation paid under the plan under 162(m). However, because the company was on a fiscal year, the changes to 162(m) due to the tax law update would not fully apply to the plans until later in 2018 and after the company's annual meeting. According to Mr. Hauder, the plaintiff's bar immediately filed suit claiming that the disclosures were misleading and sought an injunction seeking to stop the annual meeting.
In the blog, Mr. Hauder makes several suggestion to help insulate against problems beginning with a suggestion that practitioners "carefully evaluate the rationale given for seeking shareholder approval of any incentive plan" and if 162(m) is mentioned "be sure to address the changes wrought by the Tax Cuts and Jobs Act and explain how the changes will impact the plan and awards under the plan going forward, as well as why shareholder approval would be needed in light of the changes to Section 162(m)."