The 2024 Election already portends transformative consequences for federal agencies, some of which may extend to executive compensation. Among the possible impacts, agency staffing levels are in doubt, leading to possible challenges regarding exemptions, enforcement and promulgation of new authority, not to mention the real possibility of affirmative and widespread deregulation. This possible transformation is happening against the backdrop of the challenges to administrative authority presented by the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo Relentless, Inc. v. Department of Commerce, et al., 144 S. Ct. 2244 (2024), which eliminated the deference to administrative rulemaking brought about by Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
CERTAIN POTENTIAL AREAS OF ACTIVITY
The following are some forward-looking thoughts drawn from what we saw during the prior Trump administration:
- Dodd-Frank
In February 2017, President Trump issued an executive order directing the Secretary of Treasury to review the “Dodd–Frank Wall Street Reform and Consumer Protection Act.” Also in 2017, the House of Representatives, under Republican control, passed the “Financial CHOICE Act.” The Act, which failed in the Senate, would have:
- repealed the Dodd Frank’s CEO pay-ratio disclosure requirements;
- made significant changes to Dodd-Frank’s clawback provisions;
- amended Dodd-Frank’s “say-on-pay” requirements to require votes only in years following material changes to the executive compensation programs, rather than at least every three years (as is currently required);
- repealed the Securities and Exchange Commission’s proposed rules requiring companies to disclose their hedging policies for officers, directors, and employees; and
- repeal existing requirements for annual disclosure relating to a company’s CEO and chairman structure (e.g., combined, separate, etc.).
In addition, the October 2017 Treasury report that followed President Trump’s Executive Order advocated for the repeal of the pay-ratio disclosure requirements. It is unclear at this point whether the second Trump administration will pursue initiatives in furtherance of the repeal of the pay-ratio requirements and the other changes that would have been made by the “Financial CHOICE Act.”
More generally, it is reasonable to wonder, given the depth and breadth of what President-Elect Trump is apparently considering, whether some attention will be devoted to reconsidering such long-standing provisions as Section 162(m) of the Internal Revenue Code, which generally provides for nondeducibility of certain compensation paid by public companies to specified high-level executives; Sections 280G and 4999, generally relating to the deductibility of and excise taxes on “golden parachutes” arising in connection with a corporate change in control; Section 409A, relating to the taxation of nonqualified deferred compensation; and Section 457A, relating to the tax treatment of certain amounts paid by tax-indifferent parties. (There was also at one time a proposed Section 409B, which would have been even more restrictive than current Section 409A. Note also that, while the 2024 Democratic platform actually included a proposal to expand the Section 162(m) deduction limit; the Republican platform was essentially silent on executive compensation.)
Items like these, which maybe seemed unlikely in the extreme to be considered, may find their way into the discourse. Interestingly, the Project 2025 report, which was disavowed by candidate Trump during the 2024 campaign, but which was apparently authored or influenced in part by individuals who will have significant voices in the new administration, does not specifically address the foregoing matters. At a minimum, a broad array of potential issues should be watched carefully.
- Non-Competes
One might also wonder about the fate of the controversial Federal Trade Commission rule (16 C.F.R. Part 910) that purports generally to provide that a wide range of non-compete clauses would violate federal law. The court in Ryan LLC v. Federal Trade Commission, No. 3:24-cv-00986-E, (N.D. Tex. 2024), enjoined implementation and enforcement of the rule nationwide. Will the Trump administration appeal? Notwithstanding the arguably populist element underlying a ban on non-competes, there are real questions, given the anti-business aspects of such a ban, about whether the Trump administration will continue to pursue the rule. However, activity at the state and local levels may continue, and the issue should continue to be watched carefully.
- Carried Interests
Before being first elected in 2016, candidate Trump said: “As part of [certain reform efforts], we will eliminate the carried interest deduction and other special interest loopholes that have been so good for Wall Street investors, and for people like me, but unfair to American workers. . . .“Despite repeated pledges to get rid of carried interest tax break, it remains on the books.” Politifact (Dec. 20, 2017)). However, the favorable tax treatment of carried interests remained generally unaffected during the first Trump administration and even during the ensuing Democratic administration of President Biden. While there seems to be consistent legislative focus on the tax treatment of carried interests, it is reasonable to wonder whether anything major will really happen on that front.
CONCLUSION
It is reasonable to wonder whether a second Trump administration will pursue pro-business and other changes relating to executive compensation that were suggested during the first Trump administration. How far repeal and other action will go is anyone’s guess. It would not be surprising if some discussion of executive compensation at least finds its way onto the radar of the new Department of Government Efficiency. Overall, significant change of some sort is likely – we will be tracking developments closely.
We stand ready to consider with you anything you would like to discuss regarding the ramifications of the 2024 Election on executive compensation, or anything else you would like to discuss on the topic of executive compensation.
