The Impact of Deductibility Limits on Compensation Contracts: A Theoretical Examination

Author

Robert M. Halperin, University of Illinois at Urbana-Champaign
Young Koan KWON, Singapore Management UniversityFollow
Shelley C. Rhodes-Catanach

Publication Type

Journal Article

Publication Date

2001

Abstract

In 1993, Congress passed Sec. 162(m) of the IRC. This section disallows a deduction for compensation in excess of $1 million paid to the CEO and the 4 highest compensated officers other than the CEO of a publicly traded corporation unless the excess is performance-based. This paper provides a theoretical examination of both firm and executive responses to the deductibility limit imposed by Sec. 162(m). Results of the study may be useful to tax policymakers considering the effectiveness of the section in meeting congressional objectives.

Discipline

Accounting | Corporate Finance | Human Resources Management

Research Areas

Financial Performance Analysis

Publication

Journal of the American Taxation Association

Volume

23

Issue

S1

First Page

52

Last Page

65

ISSN

0198-9073

Identifier

10.2308/jata.2001.23.s-1.52

Publisher

American Accounting Association

Citation

Halperin, Robert M.; KWON, Young Koan; and Rhodes-Catanach, Shelley C.. The Impact of Deductibility Limits on Compensation Contracts: A Theoretical Examination. (2001). Journal of the American Taxation Association. 23, (S1), 52-65.
Available at: https://ink.library.smu.edu.sg/soa_research/672