Federal Election Commission Main Page
FEDERAL ELECTION COMMISSION
Washington, DC 20463
May 5, 2006
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 2006-13
Neil Reiff, Esquire
Sandler, Reiff & Young
50 E Street, S.E., Suite 300
Washington, D.C. 20003
Dear Mr. Reiff:
We are responding to your advisory opinion request on behalf
of Dennis Spivack, concerning the application of the Federal
Election Campaign Act of 1971, as amended (the "Act"), and
Commission regulations to compensation received in connection
with his work as an equity partner in a law firm while he is a
candidate for Federal office. You ask whether the compensation
paid to Mr. Spivak by his law firm will constitute a contribution
to Mr. Spivack's candidacy for the U.S. House of Representatives
in view of the fact that the time he devotes to his candidacy
this year will most likely cause his productivity to be lower
than that of previous years. The Commission concludes that, so
long as the firm follows the practices of its long-established
compensation plan, the firm's compensation to Mr. Spivack will
not constitute a contribution to him or his authorized committee.
Background
The facts presented in this advisory opinion are based on
your letters received on February 15 and March 10, 2006.
Mr. Spivack is a candidate for the Democratic nomination for
the at-large seat in the U.S. House of Representatives from
Delaware.1 He currently practices law at the firm of Morris,
James, Hitchens & Williams LLP (the "Firm"). He joined the Firm
in 1999 and became an equity partner in 2001.2 Although Mr.
Spivack does not intend to take a full leave of absence during
his campaign, he expects to devote a considerable amount of time
to the campaign, particularly during the Summer and Autumn of
2006. While he intends to continue to service clients and to
refer new clients to the Firm during the campaign, he also
anticipates that his productivity will not be as high as in
previous years.
Under the Firm's compensation plan administered by the
Firm's Compensation Committee, an equity partner's compensation
consists of three types of income: (1) basic compensation; (2)
individual incentive compensation; and (3) firm incentive
compensation. The Firm's compensation plan has been in effect
for at least 20 years.
"Basic compensation" is paid out of 50 to 60 percent of the
Firm's projected net income. For each equity partner, "basic
compensation" is reset by the Firm's Compensation Committee in
January of every odd-numbered year and remains in effect for two
years until the next reset. "Basic compensation" is based on a
look-back at each partner's productivity level for the six years
preceding the reset and, once reset, does not change until the
next reset two years later. In addition, an aggregate amount not
to exceed five percent of the Firm's projected net income is used
to adjust upwardly the "basic compensation" of equity partners
for factors not recognized by the productivity calculation. This
upward adjustment is considered part of "basic compensation" and
is also fixed at the reset. The factors determining the upward
adjustment relate to participation in Firm leadership and
marketing.3 You indicate that Mr. Spivack's status as a Federal
candidate "will not impact any upward adjustments he may
receive."
An equity partner's "basic compensation" reflects the
minimum amount of compensation that will be received by that
partner. It is intended to provide stability for equity partners
by providing a minimum compensation during the natural ebb and
flow of a partner's practice, and the six-year look-back provides
for gradual increases and decreases in "basic compensation."
Once set for a two-year period, "basic compensation" for an
equity partner has never been reduced due to reduced productivity
within that period. Nevertheless, reductions in productivity
would negatively impact the next reset of a partner's "basic
compensation" after the end of such two-year period.
The second type of partner income, individual incentive
compensation ("IIC"), is based on an equity partner's
productivity during the current year, rather than on the six-year
look-back period used to determine "basic compensation."
Specifically, IIC is based on fixed percentages of the fees
received by the Firm from (i) clients obtained by the partner and
(ii) work actually performed by the partner, regardless of who
obtained the client. The extent to which the dollar amount of
those percentages exceeds a partner's "basic compensation"
determines the proportion of the Firm's available IIC funds that
will be paid to that partner. IIC is paid to each partner
shortly after the end of the year. The aggregate of IIC paid to
the equity partners may not exceed 20 percent of the Firm's net
income. Depending upon the extent to which campaign activities
result in a reduction in Mr. Spivack's productivity, he may
receive lower IIC for 2006 than for previous years, or no IIC at
all.
The third type of partner income, "firm incentive
compensation," is drawn from the balance of the Firm's net income
(approximately 20 percent of the Firm's net income) and is
distributed to each equity partner in the proportion that his or
her "basic compensation" bears to the aggregate "basic
compensation" of all equity partners. Hence, as with "basic
compensation," no equity partner has ever had his "firm incentive
compensation" reduced due to reduced productivity within a given
two-year "basic compensation" period.
Equity partners receive monthly draws in accordance with a
schedule based on the amount of the partner's "basic
compensation." In addition, distributions of "firm incentive
compensation" are typically made in June, August, September, and
December. By the end of the year, each partner is paid
approximately 80 percent of his or her 2006 income (reflecting
"basic compensation" and "firm incentive compensation"), and the
balance, which generally reflects IIC, is paid the following year
in two installments, one in January and one in April.
During 2006, Mr. Spivack will receive his normal "basic
compensation" and "firm incentive compensation" payments. If Mr.
Spivack is elected to the House of Representatives, he will work
at the Firm at least until the end of 2006. Regardless of
whether he is elected and leaves the Firm, or is defeated and
remains an equity partner with the Firm, he will be entitled to
be paid his IIC for 2006 (if any) in January and April 2007. If
he is defeated, and remains an equity partner at the Firm, his
basic compensation for the 2007-2008 period will be reset in
January 2007, reflecting any reduced productivity in 2006.
Question Presented
Will the compensation paid to Mr. Spivack by the Firm, in
accordance with the Firm's compensation plan, constitute a
contribution to Mr. Spivack or his authorized campaign committee?
Legal Analysis and Conclusions
No, so long as Mr. Spivack is compensated in accordance with
the Firm's established compensation plan, the Firm's compensation
to Mr. Spivack will not constitute a contribution to him or his
authorized committee.
The term "contribution" is defined in the Act and Commission
regulations to include "any gift, subscription, loan, advance, or
deposit of money or anything of value made by any person for the
purpose of influencing any election for Federal office."4 2
U.S.C. 431(8)(A)(i);
11 CFR 100.52(a). Under Commission regulations implementing the
Act's prohibition on the "personal use" of campaign funds, 2
U.S.C. 439a, a third party's payment of a candidate's expenses
that would otherwise be deemed a "personal use" under 2 U.S.C.
439a(b)(2) is considered a contribution by the third party unless
the payment would have been made "irrespective of the candidacy."
11 CFR 113.1(g)(6). The Commission's regulations provide that
certain types of employment-related compensation are considered
to be payments made "irrespective of the candidacy":
(iii) Payments for that expense were made by the person
making the payment before the candidate became a candidate.
Payments that are compensation shall be considered
contributions unless -
(A) The compensation results from bona fide employment that is
genuinely independent of the candidacy;
(B) The compensation is exclusively in consideration of services
provided by the employee as part of this employment; and
(C) The compensation does not exceed the amount of compensation
which would be paid to any other similarly qualified person for
the same work over the same period of time.
11 CFR 113.1(g)(6)(iii).
The Firm's compensation plan is a hybrid formula that takes
into account (i) historical productivity levels of each equity
partner ("basic compensation" and "firm incentive compensation");
(ii) each equity partner's participation in Firm leadership and
marketing that is not recognized in the productivity calculations
(upward adjustments to the "basic compensation"); and (iii) each
equity partner's role in generating revenue for the Firm in the
current year by originating and servicing clients during the year
(IIC). So long as Mr. Spivack is compensated in accordance with
the Firm's compensation plan, his compensation will satisfy the
three criteria in 11 CFR 113.1(g)(6)(iii).
Under the usual and normal application of the Firm's
compensation plan, Mr. Spivack's compensation will result from
bona fide employment that is genuinely independent of his
candidacy. See 11 CFR 113.1(g)(6)(iii)(A). Mr. Spivack has been
an equity partner in the Firm for five years, has worked
regularly for the Firm during those years and has been, and will
continue to be, paid in accordance with the Firm's compensation
plan. He intends to continue, as an equity partner, to work for
the Firm this year at a reduced level in a manner contemplated by
the Firm's compensation plan, which "is designed to handle all
situations regarding the short-term fluctuation or reduction of
productivity by any partner in the Firm," including leaves of
absence to deal with personal and family issues. Historically,
the Firm has reduced compensation for equity partners under its
compensation plan. For example, one partner's billable hours
were reduced significantly due to personal reasons, and his
overall compensation was reduced by approximately 20 percent over
the past several years as a result.
Under the usual and normal application of the Firm's
compensation plan, compensation to Mr. Spivack will be
exclusively in consideration of services provided by him as part
of his employment. See 11 CFR 113.1(g)(6)(iii)(B). Productivity
calculations for determining an equity partner's "basic
compensation" and "firm incentive compensation" are based on
objective criteria and are unrelated to a partner's political
candidacy. See Advisory Opinion 2004-08 (American Sugar Cane
League). Further, Mr. Spivack's candidacy will not result in any
upward adjustment to his "basic compensation." Thus, "basic
compensation" and "firm incentive compensation" are paid
exclusively in consideration of services provided by Mr. Spivack
as part of his employment. Although "basic compensation" and
"firm incentive compensation" for Mr. Spivack will not be reduced
during 2006 because of any reduced productivity in 2006, these
types of compensation will be affected by his reduced 2006
productivity if Mr. Spivack remains with the Firm when his "basic
compensation" is reset in January 2007 for the next two-year
period.5 Moreover, Mr. Spivack's IIC for 2006 will be affected
by his reduced 2006 productivity, regardless of whether he
remains with the Firm beyond 2006.
Finally, based on the normal application of the Firm's
compensation plan, the compensation to Mr. Spivack would satisfy
11 CFR 113.1(g)(6)(iii)(C). Although the "basic compensation"
and "firm incentive compensation" paid to Mr. Spivack during
calendar year 2006 will not be reduced, he will be paid the same
as any equity partner with the same past productivity and upward
adjustment factors. In addition, he will be subjected to the
effects of decreased productivity in his IIC for 2006 and in the
reset of his "basic compensation" in January 2007, in the same
manner as any other equity partner with similarly decreased
productivity during 2006.
Based on the foregoing analysis, the Commission concludes
that the Firm's compensation to Mr. Spivak will be made
irrespective of his Federal candidacy and, hence, will not
constitute a contribution.
This response constitutes an advisory opinion concerning the
application of the Act and Commission regulations to the specific
transaction or activity set forth in your request. See
2 U.S.C. 437f. The Commission emphasizes that, if there is a
change in any of the facts or assumptions presented, and such
facts or assumptions are material to a conclusion presented in
this advisory opinion, then the requestor may not rely on that
conclusion as support for its proposed activity.
Sincerely,
(signed)
Michael E. Toner
Chairman
Enclosure (AO 2004-08)
_______________________________
1 On January 31, 2006, Mr. Spivack filed his Statement of
Candidacy, and his principal campaign committee, Spivack for
Congress, filed its Statement of Organization.
2 As of the end of 2005, there were 24 equity partners in the
Firm.
3 Specifically, the following factors are considered in the
determination of the upward adjustment: (i) participation in Firm
management; (ii) collaborative marketing activities promoting the
Firm which do not result in direct "production credits" for
determining a partner's individual incentive compensation; (iii)
effective leadership of, or extraordinary contribution to, the
Firm; (iv) extraordinary efforts to enhance the productivity of a
practice group within the Firm; and (v) extraordinary efforts to
mentor and train associates.
4 As a partnership, the Firm may not make a contribution to any
Federal candidate or a candidate's authorized committee in excess
of $2,100 per election. 2 U.S.C. 441a(a)(1)(A); 11 CFR
110.1(b)(1) and 110.1(e).
5 This is no different from the effect on the compensation of
any other equity partner with reduced productivity during 2006.
Moreover, although Mr. Spivack will not experience a reduction in
subsequent "basic compensation" and "firm incentive compensation"
if he is elected and leaves the Firm at the end of 2006, he will
be in no different position from any other equity partner who
leaves the Firm at the end of a year.