ESPP: Highly Compensated Employees
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What does 'Highly Compensated Employees' mean exactly? I've researched and found that Section 414(q) of the code says $80,000. That really doesn't sound highly compensated and would eliminate a heck of a lot of employees.
SVP's receive extra and enormous compensation through Restricted stock and a high number of options (aside from salary), and many companies don't offer stock equity to below the director level, so how can you offer ESPP as a balance for morale, etc.? I know we can limit the number of shares purchased but I'm specifically asking about Section 414(q).
Thanks!
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For the meaning of "highly compensated" that you ask about, take a look at the new limits the IRS has announced that apply to qualified retirement plans. They may also apply to ESPPs for your purpose.
Link to them on IRS site (2012 numbers released just last week): http://www.irs.gov/newsroom/article/0,,id=248482,00.html
See part where it states: "The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $110,000 to $115,000."
The number you give in your original post increases based on COLA/inflation, similar to how the benefits and wage base for Social Security are going up in 2012 (widely reported). It's not a requirement to exclude employees/executives with income greater than that, as many employees around that income level likely do not feel "highly compensated," particularly if they live on the West Coast or Northeast.
ESPPS are a good broad-based morale builder, particulary with an attractive discount (10% or 15%). A look-back makes them even better. For more on the ESPP rules for a plan see: http://bit.ly/vmcrlo
Bruce Brumberg, Editor
www.myStockOptions.com and www.myNQDC.com