Friday, January 14, 2005
Although Congress limited the deduction for some executive pay of public companies, it provided several exceptions, most notably for some incentive pay arrangements. However, qualifying for the exceptions often requires satisfying strict objective and mechanical requirements. The recent IRS pilot review of executive compensation indicated that many public companies are failing to comply with those strict requirements and are being forced to limit their deductions for compensation that could have been fully deducted. In light of this new focus by the IRS, all public companies should review their executive compensation arrangements, compensation committee procedures, and shareholder preapproval procedures to ensure that incentive payments are excluded from the $1 million deduction limits.