The following is not meant to be legal advice.
Alternative methods of compensation, compensation that is not salary, should be reviewed in order to comply with final regulations for Section 409A. Much press has already been written about Internal Revenue Code Section 409A.
Section 409A affects the valuation of private company stock. Valuation of stock not readily tradable on securities markets should consider the value of the tangible and intangible assets of the company, the present value of future cash flows, control factors. On a personal level, all these unknowns bring about complications for the executive who wants to work at a start up because he/she may not really know how much the shares awarded are really worth. This is something to think about when determining if the stock award is reasonable for the level of the position.
At the corporate view, the regulations relate to any deferral of compensation. For example, non-statutory stock options, such as options granted to consultants and board members, fall into the category of deferral of compensation. The company might consider routes that will bring the company into the safe harbor protections, such as using an independent appraiser, or a calculation method based on actual transactions.
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