FASB Updates For 2016 Financial Statements Could Impact Permissible Adjustments Under Code Section 162(m)

IRC Section 162(m) provides that a public company may not deduct annual compensation paid to a "covered employee" in excess of $1,000,000 per year, other than certain "qualified performance-based compensation." For these purposes, "covered employees" generally include the company's CEO and its three most highly compensated executive officers (other than the CEO and CFO) identified in the company's "Summary Compensation Table."

To qualify for the Section 162(m) qualified performance-based compensation exemption, compensation must be paid subject to pre-established and objective performance goals set by a compensation committee consisting solely of two or more outside directors, and the material terms of such goals must be approved by the company's shareholders. Generally, any exercise of discretion with respect to the performance goals after they have been established would disqualify the compensation from being considered "qualified performance-based