The 2010 Federal Budget (the "Budget") significantly
alters the manner in which certain forms of equity-based
compensation arrangements will be taxed. Employers that offer
stock-based compensation to their employees may have to examine,
re-evaluate and possibly amend their plans in light of these
proposed changes. For the most part, the changes eliminate certain
tax advantages that were previously available with respect to the
design of stock option plans. While some of the changes will, if
enacted, be effective as of March 4, 2010, other proposals will
only be implemented in 2011.
An End to "Having Your Cake and Eat It Too"
– Cashing-Out Stock Options
The most significant proposed change relates to the cash-out
right contained in many option plans. Currently, if an employee
exercises a stock option and receives stock, no deduction is
available to the employer with respect to the issuance of the
stock. However, if the stock option plan provides that employees
can
