I'm having a tough time finding information on how to calssify employees that are a part of a non-qualified stock option plan.
A closely held corporation implemented a stock option plan during 2003 in which 40% of the company was optioned out to 4 employees. The shares are vested over a 5 year period and no more than 20% may be excercised each year.
The only real bit of info I have found is one line in the control group section (subheading of constructive receipt) of a pension resource book we have that says:
"An option to acquire stock causes the option holder to be treated as owning the stock."
If this is true to determine highly compensated or not for 2003, then the 4 employees are considered highly compensated for 2003 because they were all given at least 5% of the overall company. If I apply the vesting schedule to the amount of shares though, a couple of them are not vested in 5% of the overall value of the company. 3 of the 4 employees would not be considered highly compensated based on their annual salary.
Anyone have any thoughts on this? It of course makes a big difference in the testing of their profit sharing plan.