Deloitte - Top issues for employers sponsoring equity compensation plans - April 2010

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1.  What will be the effect of the changes to the taxation on the cash out of stock options?
Employers should evaluate existing plans to determine the
costs to the corporation of the foregone tax deduction.
Employers will have to determine the importance and, in some
circumstances, the legal obligation, to maintain preferential
individual tax treatment for employees cashing out options.
Employers should consider the accounting impact of the loss
of the deduction on their financial reporting and the impact of
any proposed modifications to the plan or cancellation of
options.
In the future, employers will need to consider selectively
granting options that can be surrendered for cash.
 
An employer should have a clearly articulated compensation
philosophy if the 50% stock option deduction on the cash
surrender of options is maintained for some employees but not
all.
Employers should evaluate other compensation alternatives. It
should be noted that stock options, even with a cash
settlement feature, will continue to be exempt from the salary
deferral arrangement rules and consequently may still offer
advantages in comparison to a cash bonus plan.
On a go-forward basis, it would be prudent for employers to
expressly reserve the right to designate which options grants
that have a cash surrender right are eligible for the 50% stock
option deduction.