Tax and Accounting

Executive compensation is subject to varying tax treatment designed to accomplish several complex policy concerns and goals. These goals are often during an economic downturn or crisis, or in the wake of problematic news stories. 

While US laws do not set specific limits on compensation, policy makers often attempt to use the tax code to deter excessive compensation or discourage specific compensation practices. 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. 

Designed to Maximize Efficiency

Boards of directors and companies seek to make executive compensation as efficient as possible for shareholders by maximizing its tax deductibility. 

New executive compensation regulations or taxation are not always in the headlines, so changes can appear unexpectedly. For example, recent economic stimulus legislation increased the number of employees for whom companies cannot deduct compensation above a given threshold.

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.

Please see below for a full list of executive compensation tax resources and further discussion about potential changes to the tax code


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