What is the main purpose of the amendment to the Executive Severance Plan?

The main purpose of the amendment is to eliminate the tax gross-up provision for "parachute payments." Instead of the company covering excise taxes on these payments, the severance amount will be adjusted to provide the executive with the largest after-tax benefit, either by reducing the payment to avoid the tax or by allowing the tax to be paid if the net amount is still greater.

Who is affected by this change in the severance plan?

The only individual affected by this specific amendment is Richard P. Wallace, the President and Chief Executive Officer of KLA Corp, as he is the sole participant in the Executive Severance Plan.

Does this change impact the total severance amount a CEO might receive?

Potentially, yes. While the gross severance amount might theoretically be higher without the excise tax consideration, the amendment ensures that the net, after-tax amount the CEO receives is maximized. If the excise tax is significant, the payment could be reduced to avoid or minimize that tax, thus affecting the gross payout.

Are "parachute payments" and change of control related?

Yes, "parachute payments" are specifically defined under Section 280G of the Internal Revenue Code as payments made to certain key employees in connection with a change of control of the company. The severance plan amendment addresses the tax implications of such payments upon a change of control.

KLAC 8-K: Leadership Changes

Summary

KLA Corp (KLAC) filed an 8-K on October 20, 2016, to report an amendment to its Executive Severance Plan. The key change is the removal of the tax gross-up provision related to excise taxes on "parachute payments" under Section 4999 of the Internal Revenue Code in the event of a change of control. This amendment aims to align severance payments more closely with the net amount received by the executive after considering potential excise taxes. The amended plan now stipulates that if a severance payment would trigger excise taxes, the payment will be reduced. The reduction will be to the largest portion that avoids the excise tax, or the full payment, whichever results in a greater after-tax amount for the executive. It's important to note that Richard P. Wallace, the CEO, is the sole participant in this plan, making this a focused adjustment impacting the company's top executive.

Key Highlights

1KLA Corp amended its Executive Severance Plan, effective October 19, 2016.
2The primary amendment removes the tax gross-up for excise taxes related to "parachute payments" (Section 4999 of the IRC).
3Severance payments that would be subject to excise taxes will now be reduced.
4The reduction aims to ensure the executive receives the greater after-tax amount, either by avoiding the excise tax or by paying it if the net amount is higher.
5The CEO, Richard P. Wallace, is the only executive covered by this plan.
6The amended and restated plan is filed as an exhibit to the 8-K.

KLA CORP 8-K Report, Executive Changes (Oct 20, 2016)

Summary

Key Highlights

Frequently Asked Questions