AO 2006-13: Candidate’s compensation not a contribution

Compensation paid to a partner of a law firm in accordance with his firm’s long-standing compensation plan is not a considered a contribution to his campaign for Congress.

Background

Dennis Spivack is a candidate for Congress in Delaware. He is an equity partner in a law firm and intends to continue working for the firm during his campaign. He does not plan to take a leave of absence from the firm, but the time he spends on his campaign may diminish his productivity.

The firm’s equity partner compensation plan consists of three types of income: (1) “basic compensation,” which is based on a six-year look-back at each partner’s productivity level and is reset every odd-numbered year, along with an upward adjustment of a partner’s basic compensation based on participation in firm leadership and marketing; (2) “individual incentive compensation” (“IIC”), which is based on the partner’s productivity during the current year as determined by percentages of fees from clients obtained by the partner and work actually performed by the partner; and (3) “firm incentive compensation,” which is distributed to each equity partner in the proportion that his “basic compensation” bears to the aggregate basic compensation of all equity partners.

Under the plan, each partner will receive approximately 80 percent of his or her 2006 income in the form of basic compensation and firm incentive compensation. Reduced productivity during the year will not affect these forms of compensation during the 2005-2006 period but will affect the reset of “basic compensation”—and hence “firm incentive compensation”—for the 2007-2008 period. The remaining portion of the 2006 income, reflecting IIC, will be distributed in January and April of the next year and will be affected by reduced 2006 productivity. Regardless of whether he is elected, Mr. Spivack will continue to receive monthly and other periodic payments of basic and firm incentive compensation through 2006 and will receive his payments for 2006 IIC, if any, in January and April 2007.

Analysis

A “contribution” includes “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.” 2 U.S.C. 431(8)(A)(1). A partnership may not make a contribution of more than $2,100 per election to a federal candidate. 11 CFR 110.1(e). Under FEC regulations barring personal use of campaign funds, a third party’s payment of a candidate’s expenses is considered a contribution, unless the payment would have been made “irrespective of the candidacy.” 11 CFR 113.1(g)(6). Compensation payments are considered “irrespective of the candidacy” if the compensation:

• Results from bone fide employment that is genuinely independent of the candidacy;
• Is exclusively in consideration of services provided by the employee as part of this employment; and
• Does not exceed the amount that 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).

Mr. Spivack has maintained bone fide employment as an equity partner at the firm for five years and intends to continue working, although perhaps at a reduced level, during his candidacy. The firm’s compensation plan is designed to handle this potential reduction in service, and the firm historically has reduced compensation for equity partners under the plan. Thus, Mr. Spivack’s compensation will result from bone fide employment independent of his campaign.

The compensation plan will also ensure that Mr. Spivack is compensated solely for services performed as part of his employment. 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 unrelated to his candidacy, and his candidacy will not result in any upward adjustment to “basic compensation.” Although these two types of compensation will not be reduced during 2006 because of reduced 2006 productivity, they will be affected by the 2007 reset if he remains with the firm. In addition, his IIC for 2006 will be affected by his reduced 2006 productivity regardless of whether he remains with the firm after 2006.

Finally, Mr. Spivack’s compensation satisfies the third requirement of 11 CFR 113.1(g)(6)(iii)(C) because he will be paid the same as any other equity partner in his position. Although “basic compensation” and “firm incentive compensation” paid to him in 2006 will not be reduced during calendar year 2006, 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 reduced productivity on his IIC for 2006 and the reset of his “basic compensation” in 2007 in the same manner as any other equity partner with similarly decreased productivity for 2006.

If he is paid in accordance with the firm’s compensation plan, Mr. Spivack’s compensation will fulfill all three requirements of 11 CFR 113.1(g)(6)(iii) and thus be considered “irrespective of his candidacy.” As such, it will not result in a contribution from the partnership to his campaign.

Length: 6 pages; Date: May 5, 2006