Q&A

The firm is routinely presented with commonly asked questions involving executive compensation and severance negotiation.

	Are severance payments taxable as income?
	Yes. A majority if not all severance payments are taxable as ordinary compensation income. There is an allowable setoff for attorneys' fees paid to acquire the severance payment. However, the company will want a signed waiver against IRS liability on the setoff.
	Can an executive demand and control which forms of compensation the target company will provide?
	Generally not for the average executive. In most large corporations, compensation plans are clearly established and set in stone. The only exception is that the executive can negotiate make whole payments to recover compensation lost from the previous company. However, a CEO or similarly high-ranking executive with an enormous track record and public notoriety can extract additional elements of compensation. In these cases, the company has to bargain against the competition or lose the opportunity to acquire the new talent.
	What are the chances of obtaining a written employment agreement?
	It depends on who you are and who the company is. Some statistics have indicated that roughly 35% of the large publicly held companies provided employment agreements to their mid level executives. At the CEO level, employment agreements are routinely used as a perquisite to retain highly qualified and sought after candidates. At the start up level, employment agreements are commonly used because the executive is often one of the original founders, and will want protection against future investors and changes in control of the company. If in doubt, always negotiate for a written employment agreement. The security and predictability employment contracts bring, far outweighs not having one.
	How do you determine whether the original compensation offer is competitive?
	The competitiveness of any offer can be determined by examining the compensation for nearly identical positions in similar market cap/revenue companies. (Ecomponline.com) Much of this information is now publicly available as a result of the new disclosures rules set by the Securities & Exchange Commission/Sarbanes-Oxley Act. Highly sought after executives can often obtain multiple offers, causing companies to bid up the price of the compensation package. In evaluating the competitiveness of the offer, a review of the tax impact and relocation expenses is required.