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When the COVID-19 relief bill was passed earlier this month, one of its revenue generators was a plan to impose additional taxation on corporate executives. In the latest amendment to 162(m) of the Internal Revenue Code, corporations will lose out on tax deductions for another five employees whose salaries are above $1 million, making for a total of 10.
At most public companies, these five other employees will be the next-highest-paid executives. However, in certain industries, such as media and financial services, it’s common for some non-executive employees to be paid more than certain executives, including the CEO.
With the 162(m) provision, it’s important to distinguish that these salaries are only being considered for tax purposes, says Deb Lifshey, a managing director at Pearl Meyer. The new provision does not require the comp committee to add any new public disclosures around pay.
“The disclosure piece around people like Katie Couric and top traders for these investment banking firms would have been a lot more information thrown out there [under the 2006 proposal] and require a lot more time and effort of compensation committees to review compensation for these people,” Lifshey says. “It’s important for people to understand the difference.”
Pearl Meyer’s Lifshey isn’t convinced that legislation related to executive pay will move forward. “It might be like the pay ratio tax,” she says. “A lot of states and cities, mostly in the more progressive areas, tried to make an additional tax or revenue generating item where the ratio was too high, and really didn’t get too much traction.
“It’s hard to get traction on matters of taxing executive compensation,” she said.