K&L Gates designs all types of executive compensation programs to meet the goals of clients located in the U.S., in the U.K. and in other jurisdictions.  For companies and executives, K&L Gates negotiates and documents compensation packages for new executives as well as executive terminations. We create stock-based incentive programs, cash and stock bonus plans and nonqualified deferred compensation plans.  Our lawyers not only assist in proactive planning on executive compensation issues, but also counsel clients with respect to legal compliance issues and, when necessary, work with our ERISA and employment and labor litigators to address those situations in which litigation may arise from time to time.

The executive compensation practice at K&L Gates involves an inter-disciplinary approach that bridges a number of different areas of the law that require a high degree of specialized knowledge including, most importantly, corporate law, tax and securities.  Proper corporate governance has been important in the U.K. for some time and is now a key concern of many U.S. companies, especially in the aftermath of the Enron debacle.  The establishment of proper procedures for the review and approval of executive pay packages is essential.  We advise boards and board committees with regard to their corporate law responsibilities and potential liabilities in connection with executive compensation decisions. We also counsel clients regarding the treatment of executive compensation programs in connection with mergers and acquisitions.

Tax considerations—achieving tax efficiency for both the company and the executive—are often the driving force in the design of compensation programs. The U.S. and U.K. tax rules applicable to compensation programs are exceedingly complex, and our knowledge of the tax rules and experience in dealing with the applicable regulatory agencies enable us to obtain optimal tax results for our clients.

The securities law requirements applicable to executive compensation have taken on increasing importance. Our U.S. lawyers know the intricacies of executive compensation disclosure rules of the U.S. Securities and Exchange Commission (SEC) as well as the SEC registration, state or “blue sky” qualification, stock exchange and Nasdaq listing and insider trading requirements applicable to equity compensation programs.  Similarly, our U.K. lawyers advise on the disclosure, listing and insider trading rules applicable to companies listed on the London Stock Exchange and the Alternative Investment Market as well as the U.K. securities laws and Financial Services and Markets Act implications of stock incentive plans.

The most recent development affecting executive compensation in the U.S. is the enactment of the Sarbanes-Oxley Act. Among other things, this law prohibits loans by public companies to executive officers, imposes more stringent reporting requirements for insider stock transactions and requires insiders to repay bonuses and stock profits realized by them following the release of financial information that, due to misconduct, must subsequently be restated. Our lawyers are familiar with Sarbanes-Oxley and the strategies that can be used by public companies to ensure compliance with this important law.

Equity Compensation Plans
Equity compensation is a topic of critical concern to many public and privately held companies. These companies view equity compensation programs as valuable tools that promote employee loyalty and influence employees to perform in ways that contribute to company growth. We develop stock-based incentive programs, including stock option, restricted stock, stock appreciation rights, phantom stock and broad-based employee stock purchase plans.  We also advise on the effect of mergers and acquisitions and other corporate transactions on stock-based incentive plans.  In recent years, we have designed and implemented equity-based plans for limited liability companies and partnerships as well as the traditional corporate stock-based plans.

• We structured a new stock compensation plan for a Fortune 500 energy company.  The plan included stock option, restricted stock and performance share features.
  
  
• We developed a strategy for consolidating the equity compensation programs of a specialty steel manufacturer and diversified manufacturer in connection with the merger of those companies, and later restructured those programs in anticipation of the spin-off of two non-core business units.
  
  
• We created an innovative equity structure for a large limited liability company in the financial services sector, enabling the company to issue equity interests to executives on a tax-effective basis.
  
  
• Our lawyers in the U.K. have designed and implemented a variety of stock plans in the U.K., including plans that are approved by HM Revenue & Customs to provide relief from income tax and unapproved arrangements, as well as multi-jurisdictional stock plans.

Deferred Compensation
K&L Gates lawyers structure nonqualified deferred compensation plans to protect executives against the adverse impact of legal limits on qualified retirement plan benefits, supplement the pension levels of key executives and solve qualified plan discrimination issues. Executives are increasingly concerned about the security of company promises to pay future compensation. We create funding vehicles intended to make executive compensation arrangements more secure. These vehicles include “rabbi trusts” and “secular trusts,” executive compensation insurance, nonqualified annuities and corporate-owned life insurance.  We review deferred compensation plans for compliance with the new U.S. tax law requirements contained in the American Jobs Creation Act of 2004.

• We designed a supplemental executive retirement plan (SERP) in order to assist a utility company in attracting from other companies executives who would otherwise suffer a loss of pension benefits in making a mid-life career change.
  
  
• We implemented a deferred compensation plan for a manufacturer of recreational vehicles.  Under this plan, executives can defer income on a tax-advantaged basis in excess of the amounts that contributed to the company’s 401(k) plan.
  
  
• For a client that faces potentially large asbestos claims, we assessed the risks that a bankruptcy filing would pose with regard to deferred compensation plans and developed strategies to minimize those risks.
  

Executive Employment, Incentive and Severance Arrangements
We negotiate and draft executive employment and non-competition agreements and document executive incentive programs to ensure that the compensation paid will qualify as “performance-based compensation” that is fully deductible under the U.S. tax code or is deductible under U.K. corporation tax principles.  We counsel clients with respect to the design and implementation of golden parachute agreements for key executives as well as more broadly applicable severance programs for employees. We also assist our clients in maximizing the tax efficiency of these arrangements.

• We designed change in control severance plans for two groups of key employees of an oil and gas producer.  These plans are intended to keep the employees focused on their work—rather than on job security issues—should a change in control transaction be undertaken.
  
  
• We represented a key executive of a major financial institution in negotiating and documenting his compensation package.
  
  
• We created a series of executive severance agreements for an NYSE-traded company that was downsizing its workforce

Securities Disclosure
We regularly advise public companies on their disclosure obligations with respect to executive and equity compensation matters, including disclosure in proxy statements, 10-K, 10-Q and 8-K reports, and reporting of insider transactions under Section 16.

Executive Compensation Emerging Issues Task Force
The executive compensation landscape is experiencing a fundamental shift in response to the current global economic crisis. We formed the Executive Compensation Emerging Issues Task Force to help lead our clients through this rapidly changing, and sometimes treacherous, environment. The task force is an interdisciplinary group, composed of lawyers from our executive compensation, financial services, labor and employment, and public policy practices in both our U.S. and U.K. markets. By studying these issues in detail in an interdisciplinary fashion, we can provide clients with practical guidance on the design and administration of compensation programs in light of the significant changes taking place.