As we all know, Instruction 3 to Item 402(a)(3) of Regulation S-K permits a company to exclude from its named executive officer group an individual who would otherwise be one of its most highly compensated executive officers if that status is due to the payment of amounts of cash compensation relating to an overseas assignment attributable predominantly to that assignment. Frankly, I don’t see this issue come up very often, largely because the amount of the executive’s compensation that would cause him or her to be a named executive officer is sufficient to qualify for named executive officer status independent of the amount paid as a result of the overseas assignment.
I was reminded of this somewhat obscure instruction earlier this week while leafing through the definitive proxy statement of Seagate Technology plc. Tucked into the back of its Compensation Discussion and Analysis is a lengthy discussion of its long-term international assignment policy:
The Company’s global business needs require it on occasion to relocate certain employees with special or unique skills to countries where those skills may not be readily available. To meet this need, the Company utilizes long term international assignments, which are provided under its Long Term International Assignment Policy (“LTIA Policy”). The Company provides certain benefits and allowances to these long-term international assignees according to the LTIA Policy. Mr. Nygaard receives the standard benefits and allowances under the LTIA Policy as described below for his assignment in Thailand. The Company provided Mr. Nygaard with housing and related support, goods and services in Thailand, education support for his children, annual home leave travel, and payment for his tax returns preparation in accordance with the LTIA Policy terms. In addition, the Company makes certain tax equalization payments or reimbursements for expatriates to ensure that the assignment is tax neutral to the employee. The Company withholds a hypothetical tax amount for the expatriate in amounts roughly equivalent to the taxes of a peer employee in the relevant country not on assignment under the LTIA Policy. After the expatriate’s actual income tax returns have been prepared, the Company’s accountants prepare a tax equalization calculation to show what the employee should have paid if s/he had remained at home and not taken the assignment. The employee receives credit for any taxes s/he has paid during the year, and the Company pays all costs related to the actual taxes due in both the home and host locations. The Company’s tax equalization cost is limited to any difference between the actual taxes paid and the “stay at home” tax the employee would have paid, after calculations are prepared by the Company’s accountants.
The total estimated payments made in fiscal year 2020 for Mr. Nygaard’s benefits under the LTIA Policy is $475,300 as described in note 13 to the Summary Compensation Table for Fiscal Year 2020 in this Proxy Statement. Final actual cost is not known at the time of this filing due to pending tax calculations, which can only be completed at a later date.
When you flip to the Summary Compensation Table, here’s the supplemental information provided in a footnote about the specific details of this payment:
Mr. Nygaard’s LTIA benefits include payments made in fiscal year 2020 for expatriate tax and tax equalization for year to date 2020, remaining expatriate tax and tax equalization owed for 2019 in the amount of $164,075, a cost of living allowance in the amount of $63,479, educational payments in the amount of $59,034; host location housing in the amount of $113,413, home leave in the amount of $18,716, transportation expenses in the amount of $55,483, and immigration and tax services in the amount of $1,100. As described more fully in the section entitled “Compensation Discussion and Analysis—Long Term International (Expatriate) Assignment Policy,” the tax equalization payments are intended to ensure that the long-term international assignment is tax neutral to Mr. Nygaard as compared to being based in the U.S.
This is certainly one of the most thorough disclosures I’ve encountered on an overseas assignment policy and the amounts incurred under that policy. (I’ve taken a look, and the company has been providing this level of disclosure for a few years now.) And since the amount only represents approximately 12% of the subject executive’s total compensation for the year, it’s not enough to trigger the Instruction. In any event, I found it to be interesting — and unusual — disclosure that might be of use to someone in the future if faced with a similar situation.
-Mark Borges, CompensationStandards.com September 2, 2020
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