ERISA & The Various Forms Of Executive Compensation
The subject of executive compensation has never been in the news more than in the past year due to corporate bailouts and the subsequent proposed limitations by the Obama Administration. There are so many forms of executive compensation that we asked Ron Dean, a California attorney who has been practicing ERISA (Employee Retirement Income Security Act) law for over 35 years, to describe how some of them work. Here’s what he said in a recent interview:
- Deferred compensation. Tax qualified pension plans have limits as to the amount of pensions they can pay. Highly paid executives are generally not satisfied with those limits. In order to provide greater benefits at retirement, or when they leave employment, they “defer” some of their compensation until certain events occur. The amount of those benefits, the interest rate they earn, when the benefits are payable and whether the employer has any money at the time benefits are due are all regulated by the actual plan documents.
- Stock options. As with change in control benefits or golden parachutes, it depends on the terms of the written document. Carefully read the plan providing the stock options and compare it to what the employer is telling you. If you feel you’re not getting the whole story from the employer, it’s time to see a lawyer. Any significant delay can and will be held against you in a court of law.
- ESOPs. Employee Stock Ownership Plans (ESOPs) are plans where the employees accumulate rights to employer stock with their years of service. They can be very good things if the employer does well and very bad things if the employer goes broke. Everyone agrees, however, that an ESOP should not be your main source for retirement income.
If an employer manipulates its stock to its own benefit and to the detriment of stockholders, ESOP participants have a claim. If the Plan pays too much for the stock, or sells it for too little, you have a claim. If the ESOP fiduciaries manipulate the stock for their own (or the company’s benefit) therein lies a claim.
- Change in control benefits. A “change in control*” will almost always be defined by the plan document itself, as well as defining what benefits are payable on a “change in control.” If there is a dispute with your employer as to entitlement, you will need to have a lawyer look at the document to see if you have a good claim.
*Note: The term “change in control” is a term of art referring to the transfer of ownership in a company. In these situations, executive contracts often contain clauses that protect them from being terminated and define what compensation and/or benefits they’ll receive under the new ownership/management.
- Golden parachute. If you’re terminated by the company you may be protected by a “golden parachute” – meaning that you will receive all kinds of payments. It’s a fancy kind of severance pay, but it usually includes cash, stock options, continued medical coverage, additional pension credits, life insurance and pretty much anything else you can think of. The terms of the promises will almost always be in a written document.
If you’ve been denied compensation under ERISA, consult with an experienced ERISA attorney to discuss your situation and evaluate your options. Consultations are free, without obligation and strictly confidential.