Revamping Executive Incentives
Client: Architecture and Engineering Firm
Architecture and Engineering Firm, a global provider of architecture, engineering, planning, interior design, landscape architecture, and development services, sought to overhaul its long-term incentive and deferred compensation plans under IRS Code Section 409A. The existing structure inadvertently encouraged executives to retire or leave to access incentives, exposing the company to IRS penalties, a 20% excise tax, 4-6% interest, and HR/PR challenges from dissatisfied leaders. Hall Benefits Law (HBL) restructured the plans to align with short- and long-term goals, creating “golden handcuffs” that retained key talent, drove growth, and yielded immediate positive impacts as noted by involved executives.
THE CHALLENGE
The deferred compensation plan incentivized severance for payout, risking non-compliance with Section 409A and triggering substantial taxes and penalties. This misalignment threatened executive retention, company performance, and morale, with potential financial hits from IRS enforcement complicating efforts to foster long-term commitment and growth.
THE TURNING POINT
Recognizing the need to realign incentives without violating ERISA or tax rules, Architecture and Engineering Firm engaged specialized counsel to redesign the programs. Without changes, the firm faced ongoing talent loss and regulatory exposure, leading to HBL’s involvement for a compliant, strategic overhaul.
THE SOLUTION
HBL partner Anne Tyler Hall developed new deferred compensation and long-term incentive structures that mitigated penalty risks while tying rewards to company and executive objectives. The redesign emphasized retention through performance-based “golden handcuffs,” ensuring compliance and addressing tax/HR issues for seamless implementation.
HBL, led by partner Anne Tyler Hall with support from Tim Kennedy, conducted a comprehensive contract review to identify fiduciary vulnerabilities and unreasonable fees. They facilitated multiple dialogues with providers, educating them on Global Digital Marketing Firm’s risks under DOL guidelines. When concessions stalled, HBL interviewed alternative vendors and used the leverage of potential business loss to push for better terms, ensuring alignment with regulatory expectations for fee reasonableness and transparency.
Our Results
Penalty Risks Mitigated
Eliminated exposure to IRS penalties, 20% excise tax, and 4-6% interest by restructuring for full Section 409A compliance.
Aligned Incentives
Created programs that incentivized executives to stay and drive growth, functioning as effective "golden handcuffs."
Immediate Positive Impact
Executives reported an instant boost to company performance and morale upon implementation.
Sustainable Framework
Delivered a forward-looking compensation model completed in Summer 2024, supporting long-term organizational goals.
WHY IT MATTERS
Misaligned executive incentives can erode talent and expose firms to tax liabilities, but targeted redesigns under ERISA and tax codes can transform them into growth drivers. This case shows the value of proactive compensation planning to retain leaders, avoid penalties, and enhance performance, particularly in competitive industries like architecture and engineering.
ABOUT HBL
Hall Benefits Law (HBL) is a boutique ERISA and employee benefits law firm helping employers design and defend retirement and health plans. With offices nationwide, HBL advises on M&A benefits, ESOPs, executive compensation, and compliance, and drives savings and transparency through TPA and PBM negotiations. Firm clients have realized over $400MM+ in penalty abatements and multimillion-dollar annual plan savings.