Executive Compensation – The Importance of Being Clear (Being Earnest May Not Be Relevant)
Most executive compensation arrangements are in the form of contractual documents. Even a form deferred compensation plan (or “top hat” plan) providing deferred compensation for a select group of management or highly compensated employees , while in legal terms is still an employee benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is still, in a very essential way, a contract or agreement between an employer and those employees designated as eligible for participation. “Wiggle room” for the administrator of a plan to interpret the meaning of the plan, and discretion retained by an employer to modify unilaterally the terms of a contractual document with an executive, may be helpful but may not go as far to protect the employer as the employer might like. The well-established concept that, in the case of a benefits denial, the administrator of an ERISA plan should be permitted to interpret the terms of the plan and be subject to a defe...