Many companies that are taking their stock plans out for shareholder approval this proxy season to replenish their share reserve are also amending their plans to accommodate recent changes in law, governance practices and new developments, such as the recent change that FASB adopted to the accounting rules for share-based awards (ASC 718) allowing withholding of shares to satisfy tax withholding rates at a rate higher than the minimum tax withholding rate without triggering liability…
In the world of comp lawyers, this is the time of year when every dayâs to do list includes a review of one or more (sometimes, many more) equity award agreements in need of an annual update. In view of recent events in the world of plaintiff shareholders, one of the areas weâre homing in on this year is the award agreementâs tax withholding provision and its level of discretion around whether or not shares will be withheld for taxes.
Many companies are considering changing their tax withholding practices after FASB modified the accounting rules for share-based awards (ASC 718). For most companies, the modified rules become mandatory for accounting periods starting after December 15, 2016, although companies are able to voluntarily implement the revised rules earlier.
The changes to ASC 718 were mainly intended to facilitate tax withholding for equity awards granted to employees outside the U.S., but have also raised questions for taxes withheld for U.S. executives.