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Searching for Articles published in December 2017.
Found 7 Results.

Examiners are Carefully Scrutinizing Financial Institutions’ Compensation Arrangements

Posted on December 13, 2017, Authored by Benjamin E. Streckert, Filed under Banking and Financial Matters

It has come to our attention that some examiners have recently been carefully scrutinizing financial institutions’ employee compensation arrangements. Although it now appears unlikely that the proposed Dodd-Frank rules on financial-institution incentive compensation (which only apply to institutions with at least $1 billion in total assets) will ever take effect, examiners still do take compensation, particularly executive compensation, into account as a part of the regular risk-management, internal controls, and corporate governance examination process. Given the recent scrutiny, it may be prudent to review your institution’s compensation arrangements in light of regulatory guidance on the subject. In 2010, the FDIC and several other regulatory agencies published a final “Guidance on Sound Incentive Compensation Policies”, which is still the most instructive authority. To identify and prevent compensation policies that encourage employees to take inordinate amounts of risk in order to boost their compensation without adequate safeguards or oversight, it requires that all FDIC-supervised institutions apply certain principles in their employee compensation programs. The Guidance provides that, in assessing the general health of each organization, regulators will consider the extent to which “incentive compensation arrangements” are consistent with safety and soundness. “Incentive compensation” is defined as “that portion of an employee’s current or potential compensation that is tied to achievement of one or more specific metrics.” Examples of incentive compensation would include: a bonus paid out upon the organization reaching certain revenue-growth benchmarks; an annual bonus calculated based on fiscal year profits; or stock options that vest upon the organization’s stock reaching a certain price. The Guidance states that, in order to be consistent with safety and soundness, banks need to consider their incentive compensation programs carefully for “covered employees,” which include senior executives and any other employees who, individually or as part of a group, have the ability to expose the banking organization to material amounts of risk.  The Guidance suggests that incentive compensation arrangements that apply to these covered employees should: provide employees incentives that appropriately balance risk and reward; be compatible with effective controls and risk-management; and be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. The above considerations attempt to ensure that incentive compensation programs align with risk-based concerns. These principles are fairly abstract, but the FDIC does give some ideas of concrete actions institutions can take to ensure that their compensation policies will not be deemed inconsistent with safety and soundness. Simple incentive compensation policies that do not take risk into account, such as awarding an executive an annual bonus upon reaching certain revenue growth benchmarks, do not comply with the standards set forth in the Guidance. However, adding some combination of the following strategies could bring such a policy into compliance: Risk Adjustment Awards. The bonus is adjusted based on measures that take into account the risk the employee’s activities may pose to the organization rather than solely considering profit, revenue, growth, etc. Risk-based measures may be quantitative, or the size of a risk adjustment may be subject to the board of directors’ discretion based on their more general assessment. Deferral of Payment. The actual payout of the bonus is deferred significantly beyond the end of the performance, and the amounts paid are adjusted for actual losses or other aspects of performance that are realized or become better known only during the deferral period. Longer Performance Periods. The time period covered by the bonus policy performance measures is extended (for example, from one year to two or more years). Longer performance periods and deferral of payment are related in that both methods allow awards or payments to be made after some or all risk outcomes are realized or better known. Reduced Sensitivity to Short-Term Performance. The bonus policy could reduce the rate at which the payout increases as short-term profits or other short-term performance measures increase, instead giving long-term measures more weight. This method reduces the influence of short-term incentives and allows for the sort of long-term, safety and soundness outlook the examiners seek. Board Discretion and Oversight. The board of directors could be given the authority and the discretion to modify at least part of each bonus based on their assessment of the employee’s performance. The board could also be required to review the design and function of the bonus plan on a regular basis.  The Guidance makes it clear that the “monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization, as well as its use of incentive compensation.” Therefore, while smaller institutions do not need incentive compensation programs as robust as larger organizations, even smaller institutions should probably incorporate some of the strategies outlined above.

New Legislation Limits Government Zoning Regulations

Posted on December 4, 2017, Authored by Dean R. Dietrich, Filed under Local Governments and School Districts

New legislation has been signed by Governor Walker that limits the ability of local governments to control certain zoning regulations and requires greater flexibility in the approval of conditional use permits.  Under 2017 Wisconsin Act 67 which was just signed by Governor Walker, there are new limitations on the ability of a local government unit to enforce zoning regulations.  In particular, the new legislation gives the following protections to property owners: Property owners who own a substandard lot that was considered a buildable lot at the time of purchase may now sell that substandard lot without restriction even though municipal regulations would prevent the use of that substandard lot as a building lot under new zoning regulations. Local government units are restricted in the amount of discretion that can be exercised when considering the granting of a conditional use permit under the local government zoning ordinances.  The appropriate zoning regulation agency must grant a conditional use permit if the property owner complies with the stated requirements for the conditional use which means that the agency cannot exercise discretion as to the reasonableness or appropriateness of the conditional use permit based upon the specific circumstances of the property in question. Other changes are included in this new legislation that limit the right of a local government unit to address zoning issues and grants far greater discretion to the property owner when pursuing compliance with a local government zoning ordinance. This new legislation is designed to address a recent United States Supreme Court decision that limited the right of a property owner to sell a substandard lot to fund improvements to a building on an adjoining lot.  The legislation has gone much further, however, by limiting the discretion that a local government zoning agency can exercise when considering the granting of a conditional use permit requested by a property owner.  All local government units that are engaged in zoning regulations will need to consider this new legislation and modify how they address conditional use permits.

Matt Lauer, Charlie Rose, Harvey Weinstein, Bill O’Reilly, Who’s Next?—Are you prepared for harassment allegations in your workplace?

Posted on December 1, 2017, Authored by Sara J. Ackermann,

Sexual harassment in the workplace is not new.  However, the rash of recent cases reported in Hollywood, Corporate America, and our Federal Government are shining a new spotlight on the issue. As an employer in Wisconsin, here is what you need to know to avoid being the next headline: All allegations must be taken seriously.  Employers must commence an investigation immediately.  In the event of delay, the burden is on you to explain why the delay occurred.  Further, don't wait for a complaint—if management is aware of inappropriate behavior, that alone legally requires an investigation. The investigation must be documented. Your investigation may be challenged later if litigation ever ensues so you must preserve your documentation of the entire investigation process.  This includes detailed allegations, witness identification, scope of investigation, scheduling, interview notes, credibility determinations, etc.  The investigation must lead to a conclusion.  You must decide “Is there sufficient evidence to support the allegations?”  This is not the “beyond a reasonable doubt” standard that we have in criminal trials.  You, as an employer, are the judge and jury. You must decide if there is evidence to support the allegations.  To say simply “we don’t know what happened—it is a he said/she said” is an unacceptable conclusion.  If you actually knew what happened, you would not need an investigation in the first place!  The swiftness in which the investigation occurred in the NBC/Lauer case has set an unprecedented standard for speedy decision-making that will set a new bar in these types of investigations. Employers must be ready. Use the attorney-client privilege to your advantage.  Experienced legal counsel can assist you in managing the investigation so that you can make sure nothing is missed.  In addition, without the attorney-client privilege, all internal discussions regarding the matter could later be made public through litigation.  Conversations between Human Resources and management will not be considered confidential unless an attorney is present.  This means these conversations, emails, etc., can be used against you in litigation down the road.  In these delicate cases,  the wrong comment made or email sent can drastically change a case for the worse.  Don’t let that happen to you. Conduct workplace harassment training for your management. Management training should be different than non-management training.  Managers are held to a very high standard under the law—they MUST (not may) report anything that could give rise to a harassment claim to Human Resources.  It does not matter whether there is an official “complaint” or not.  From a legal standpoint, if management knows about the conduct and takes no action, the company is liable and the manager is subject to personal liability as well.  Managers are often surprised to learn that they might have a responsibility to report conduct that takes place outside the workplace.  Good management training will minimize your risk in these cases! Takeaway:  We are here to help you with both the investigation process and sensitive management training in this area.  Do not be the next headline!  Call anyone in our Employment, Benefits & Labor Relations group to assist you!    

OCC Updates Guidance on Business Combinations

Posted on December 1, 2017, Authored by Matthew D. Rowe, Filed under Banking and Financial Matters

The Office of the Comptroller of the Currency (“OCC”) has recently updated its “Business Combinations” booklet, which is part of the Comptroller’s Licensing Manual.  The revised booklet replaces the prior version, which was issued by the OCC in December 2006.   The booklet incorporates a variety of updated procedures and requirements for national banks and federal savings associations that are proposing to enter into significant combination transactions with another institution. The booklet provides an overview of policies and decision criteria that the OCC considers when reviewing applications from banks seeking to engage in merger transactions, consolidation transactions, certain purchase and assumption transactions, and reorganization transactions.  It also describes the application process, provides guidance on application requirements, and explains the circumstances under which a streamlined business combination is granted approval.  Finally, the booklet lists references and links to informational resources and sample forms and documents that applicants may find useful during the filing process. National banks and federal savings associations that are considering entering into any type of business combination transaction should consider the guidance that is included in the “Business Combinations” booklet whenever considering a potential combination transaction with another institution.

The NLRB Announces a Major Reversal on Employee Policies and Handbooks

Posted on December 21, 2017, Authored by Robert J. Reinertson, Filed under Employment

We have reported in blog articles and seminars in recent years on decisions by the National Labor Relations Board (NLRB) that invalidated employee policies and handbook provisions which sought, among other things, to promote workplace civility and reasonable behavior.  Last week the NLRB overturned the 2004 case that started that trend. In the 2004 case, the NLRB ruled that an employer’s policy is illegal if employees could “reasonably construe” it to prevent them from exercising their rights to engage in concerted activity to improve the terms and conditions of their employment, whether they were unionized or not.  This led to a variety of policies being struck down, even if they seemed to be reasonable and common sense rules for behaving and interacting in the workplace. The new case (The Boeing Company, 365 NLRB 154) involves a rule that restricts the use of cameras on Boeing property without a valid business need and unless approved by the company.  Boeing defended the rule as being necessary for security purposes and to protect its proprietary information.  The administrative law judge who first heard the case ruled that, based on the 2004 case, the no-cameras policy was illegal because employees would “reasonably construe” it to prevent concerted activity in protecting their labor rights. The NLRB reversed, and rejected the “reasonably construe” standard.  The Board stated that this standard, as it has been applied in recent years, reflects “. . . a misguided belief that unless employers correctly anticipate and carve out every possible overlap with [National Labor Relations Act] coverage, employees are best served by not having employment policies, rules and handbooks.  Employees are disadvantaged when they are denied general guidance regarding what standards of conduct are required and what type of treatment they can expect from coworkers.”                       The NLRB cited several instances of “misguided” decisions, including those that found that policies requiring employees to “work harmoniously” or to conduct themselves in a “positive and professional manner” were illegal. Under the new standard announced by the NLRB, employee policies, rules, and handbook provisions will be evaluated with an eye toward striking a proper balance between business justification and employee rights.  It further declared that it would establish three categories of policies, rules, and handbook provisions: Policies that the Board broadly designates as not interfering with the exercise of employee rights to engage in concerted activity or where the potential adverse impact on such rights is outweighed by business justifications.  These include rules that require employees to “abide by basic standards of civility”. Policies that warrant scrutiny in individual cases to determine whether they interfere with employee rights and whether protecting such rights is outweighed by business justifications. Policies that the Board designates as being unlawful.  An example would be a rule that prohibits employees from discussing wages and benefits with one another. This new balancing test should provide employers with more flexibility and certainty in fashioning workplace rules, policies, and handbook provisions.  This is especially timely in light of the heightened awareness of the need to have policies prohibiting and dealing with sexual harassment in the workplace.

Simple IRA Retirement-saving Solution

Posted on December 4, 2017, Authored by Mary Ellen Schill, Filed under Ag-Visor

Workplace retirement programs play an important role in attracting and retaining employees, helping workers (and owners!) save, and provide significant tax advantages.  Employer contributions to “qualified” plans (like 401(k) plans) or IRA-based plans are deductible by the business when made, and taxes on the recipients (your employees or even you!) are not imposed until the benefits are actually received.  Even better, the contributions are invested in tax-exempt trusts, and so they grow tax-free. Over the years the tax laws have made it easier for smaller employers like farms to sponsor qualified retirement programs (the safe harbor 401(k) plan is one such plan) and IRA-based plans such as a SIMPLE IRA plan.  “Safe harbor” 401(k) plans and “SIMPLE” IRA programs provide the same tax advantages as their big brothers (immediate deductions for contributions and deferred taxation for participants), but have the added benefit of avoiding some of the nondiscrimination rules that apply to traditional qualified plans.  Unfortunately, the lack of nondiscrimination rules means rather rigid rules about who must be able to participate and how often contributions must be made.  For this article, we’ll focus on the SIMPLE IRA. Any employer with 100 or fewer employees that does not sponsor any other retirement program can sponsor a SIMPLE IRA for its employees.  There is a relatively “simple” tax form that is used to establish the program—the Form 5304-SIMPLE or the Form 5305-SIMPLE.  A bank or other financial institution must be used as the depository for the IRA accounts.  SIMPLE IRA programs allow both employer and pre-tax employee contributions.  The employer can deduct its contributions when made. As with all good things, there are limits on the contributions (both employer and employee).  For 2017, each employee is limited to $12,500 in contributions, but any employee who is age 50 or older during 2017 can contribute an additional $3,000.  As for employer contributions, there are two options, and each calendar year that the SIMPLE IRA is in effect, one or the other must be implemented.  The first option is to match each employee’s contribution at a rate of 100% of the first 3% of compensation deferred.  This matching contribution rate can be reduced to as low as 1% of compensation in any two out of five years of SIMPLE IRA sponsorship.  Alternatively, the employer can contribute 2% of each eligible employee’s compensation (referred to as an employer “nonelective” contribution).  Under either option, the amount of compensation that can be considered for each employee is limited; the limit for 2017 is $270,000. All employee and employer contributions are immediately 100% vested when made.  Employees are able to withdraw both their contributions and the employer’s contributions at any time, but any withdrawals are subject to income taxes AND an additional excise tax of 10% if withdrawn prior to attaining age 59½. In addition to the contribution requirements for the SIMPLE IRA, there are also minimum coverage rules to consider.  The employer must make the SIMPLE IRA available to any employee who has compensation from the employer of at least $5,000 in any prior two years and is reasonably expected to earn at least $5,000 in the current year.  Owners can participate in the SIMPLE IRA program just like other employees. Eligible employees must be notified annually (at least 60 days prior to January 1) of their ability to participate in the program and what contribution option the employer selected (matching contributions or nonelective contributions).  Failure to give the required notice can have significant consequences.  For example, the employer can be required to make a contribution in the amount of 1.5% of the employee’s compensation, plus earnings, and plus any missed matching contributions for any employee who did not get the required notice.  So, an employer that sponsors a SIMPLE IRA must make sure all appropriate employee notices are given in a timely manner. There are no annual filing requirements for an employer that sponsors a SIMPLE IRA program.  Periodically the tax laws change and the IRS Form 5304-SIMPLE or Form 5305-SIMPLE must be updated, but typically the financial institution will notify the employer of the need to adopt an updated form. Admit it, there are days when retirement seems a million years away.  Unfortunately, no one has a million years to plan and invest for their life after work.  Social Security cannot, and it was never intended to, be the sole source of retirement income for retired workers, especially if there is a need or desire to maintain one’s current standard of living.  Maybe a SIMPLE-IRA program is right for your agri-business.   Reprinted with permission by Badger Common'Tater

2018 IRS Standard Mileage Rates Reflect Rising Fuel Prices

Posted on December 15, 2017, Authored by Mary Ellen Schill, Filed under Employment

The Internal Revenue Service has announced the optional standard mileage rates for computing the deductible cost of operating an automobile for business, medical, and moving expenses for 2018, and the increased rates reflect the increase in gasoline prices. Effective January 1, 2018, the optional standard mileage rates will increase to 54.5 cents per mile for business transportation, and increase to 18 cents per mile for travel relating to medical and moving transportation expenses. These mileage rates apply only to those expenses incurred or paid by a taxpayer on or after January 1, 2018 (and if reimbursed by an employer, reimbursed by the employer on and after that date). Expenses incurred prior to January 1, 2018 (whether reimbursed by the employer before or after that date) are still subject to the old 2017 rates (53.5 cents for business transportation, 17 cents for medical and moving transportation). The standard mileage rate for the deduction for charitable contributions remains unchanged from 2017 at 14 cents per mile.   This change in mileage rates is relevant to employers that reimburse employees for business transportation based on mileage. While there is no legal requirement that employees be reimbursed at the IRS standard rate, many employers have a policy of doing so. As a reminder, any payments to an employee based on business travel at a rate in excess of the IRS standard rate generally is taxable income to the employee. If you have questions regarding the above, please contact Mary Ellen Schill, the author of this article, or any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware.