Boards of directors and companies seek to make executive compensation as efficient as possible for shareholders by maximizing its tax deductibility. Executive compensation is subject varying tax treatment designed to accomplish several complex policy concerns and goals. These goals range from encouraging performance-based compensation and other certain forms to encouraging the success of startups and discouraging compensation in excess of certain amounts. There are several provisions of the tax code (Internal Revenue Code) which apply specifically to executive compensation, the most notable being:
- Tax Code §162(m) - Deductibility of Executive Compensation
- Tax Code §409A - Deferred Compensation & SERPS
The Center believes that attempts to limit executive compensation through the tax code have resulted in unintended consequences, and that, in general, executive compensation should be treated consistently with other employee compensation.