These grandfather clauses irk me... if the policy is not good enough to stand on its own then it should not be policy.
As an example, take the mortgage interest tax credit. Personally, I strongly believe it should go away; if the government is going to subsidize housing, it shouldn't spend most of that money on the already well off. But I think it would be wrong to screw all the homeowners who bought a house expecting the credit. We'd see a wave of disruption (short sales, foreclosures, people suddenly barely scraping by) that benefits nobody. So I'm fine with grandfathering existing mortgages and gradually phasing out the credit.
As a long-term shareholder, I want the CEO, board, and senior executive compensation to be tied to long term shareholder value creation. By far the easiest way to do that is to create a deferred compensation plan that ties their financial outcome to that of a long-term shareholder.
If I win big holding their shares, I want them to win big.
If they just match the market, they should get paid something for their time, but not anything exceptional.
If this policy were passed and applied to retroactively vested (but not yet received due to a time, performance, or other double trigger), that's what would seem to need to happen.
Other people have made plans for retirement or other meaningful milestones based on the current tax law. There is value in having stability and being able to plan around tax and other long-term financial realities.
Further, due to performance-dependent multipliers, it's often not even possible to know what the amount should be (which I admit applies to both grandfathered and not grandfathered comp).
Certainly not. It's all based on the purchase/exercise/offering date. Let's take it to the extreme: if homicide had been legal, and society decided we needed to outlaw it, it stands to reason that homicide committed before the law was enacted would not be prosecuted, but only those cases happening one or after that date.
Tax law isn't so clear. There's when you were granted the shares, when you acquired them (which may or may not be a taxable event, depending, among other things, on whether there's a spread between strike price and FMV), when you sold them (which is a taxable event), and when the law was enacted. There are probably yet other subtleties beyond those.
The grandfather clause covers the case when the enactment date falls amongst the others. ISOs purchased before the enactment but sold after. ISOs granted before the enactment, but purchased after. Double-triggers. Are you sure you know how the law applies, and what your tax liability is, without explicit statute to that effect, in all of those cases — or others I haven't listed, or even imagined? Is your accountant? Are you willing to bet an audit on that?
EDIT: phrasing
Criminal law absolutely recognizes that causal chains have a "first link", without which the rest of the chain wouldn't even have happened. It also specifically subjects the party causal to that first link to special scrutiny.
It is, therefore, the exact opposite of retroactive.
EDIT: phrasing.
Yes, the only reason the government is hiding time machines from us is their inability to finish the tax laws that would apply :)
Analogy: If congress raises gas taxes (nobody said analogies have to be realistic), everyone would have to pay more at the pump. But that doesn't mean the tax is applied retroactively.