This edition of Joseph E. Bachelder’s column reports on tax and securities law developments in 2018 affecting executive compensation.
Effective for taxable years beginning after Dec. 31, 2017, the ordinary income tax rate for corporations is 21%. This replaces the prior ordinary income tax rate structure for corporations that ranged from 15% to 35%. This change is contained in §13001 of the Tax Cuts and Jobs Act of 2017 (Public Law No. 115-97, 131 Stat. 2054 [Dec. 22, 2017]; the 2017 Tax Act).
In consequence of this change, annual incentive plans based on an increase in a corporation’s 2018 earnings over 2017 earnings, if not already modified, may need to be modified. The same is true for long-term incentive plans that are based on a corporation’s change in earnings over a multiyear period that includes a year after 2017 over a base that includes a year, or a period of years, prior to 2018.