Baker's Choice: April 2006

At least, here in soggy Northern California, we hope it is finally spring! In addition to spring flowers, April tends to brings a focus on executive contract negotiation at tax/fiscal year end. This issue highlights the importance of understanding certain provisions (including arbitration) in employment agreements. Plus, we point you at a wealth of commentary in the press on executive compensation, including related SEC developments and a number of tax items.

• Should your employment agreement include an arbitration clause? A recent California Supreme Court case, Grafton Partners v. Superior Court, shows that pre-dispute arbitration clauses remain a lively issue in California. Grafton highlights an odd disconnect: under California law, you can waive judicial dispute resolution entirely by agreeing to pre-dispute arbitration, but you can't agree pre-dispute to waive a jury trial in favor of a bench trial. This case got us thinking about the many questions that our clients ask us regarding arbitration, so we've put together a short practice piece on the subject for you. Rick's detailed analysis of Grafton is posted on our website for those of you who are interested in the implications of this important decision. Also, note that arbitration clauses in employment agreements can also impact equity compensation in surprising ways; my article on structuring stock compensation addresses this issue for you.


• Will more disclosure help or hurt executive compensation packages? The comment period for the proposed SEC executive compensation disclosure rules, which are expected to take effect in time for the 2007 proxy season, ended on April 10, 2006. Pundits and commentators have been weighing in on whether "sunshine" will actually make a difference; some are suggesting that the more top execs learn about one anothers' packages, the higher compensation will go. Both The Wall Street Journal and the The New York Times published their annual surveys on executive pay on April 9; studies conducted by Mercer Consulting and Pearl Meyer & Partners found that CEO pay slowed in 2005, while USA Today claims that such pay "soared." Right now it's anyone's guess (although note that some have complained that the consulting firms themselves have a vested interest in getting "right results" for compensation committees). For an interesting example of what the future may hold for executive compensation disclosure, take a look at Time Warner's most recent proxy statement, which goes way beyond what's called for today.


• Tax season odds and ends: Don't forget that you can fund your 2005 IRA/SEP or individual 401(k) plan contribution up until the date you file your tax return; it's not too late for those of you who are getting an extension. . . Employers should note that there is now an online method for checking social security numbers for employee W-2s . . . those who exercised ISOs last year and held their stock must include the spread in their 2005 AMT calculation; if you are planning to exercise in 2006, plan now to keep an eye on the potential AMT when deciding whether to sell before the end of the year.. . .and in doing your planning, keep in mind that with tax reform on the back burner, IRS official policy is clear that its "first priority" is to "discourage and deter non-compliance, with emphasis on corrosive activity by corporations, high-income individuals and other contributors to the tax gap."


• A final note to anyone who sends business email: Recently, we noticed that clients who have Yahoo addresses were not getting attorney communications from Levine & Baker. Instead, Yahoo's blacklist function was reading the "law" part of our email address as spam and either automatically deleting/ junk-listing it or holding up delivery. After a number of false starts, we were finally able to successfully satisfy the Yahoo "whitelisting" standards. Presumably, those of you with yahoo addresses are getting this email (although we can't really tell!). It's an open secret that Yahoo, AOL and the other ISP giants are gearing up to charge businesses for email delivery. If your business has also experienced issues with Yahoo delivery, we'd be happy to share the whitelisting protocol with you. Just send me an e-mail at abaker@levinebakerlaw.com and I will get you the information you need to navigate the maze.

As always, I welcome your questions and comments, and Rick and I look forward to talking with you this spring.