Executive Compensation Alert: IRS Releases Final Section 162(m) Regulations

Background

Section 162(m) of the Internal Revenue Code (the "Code") denies a tax deduction to a public company if the compensation paid to its chief executive officer and three other highest compensated officers (other than the chief financial officer) for a given year exceeds one million dollars for its taxable year. However, there are exceptions to this limitation on deductibility (i) for compensation that is "performance-based" within the meaning of Section 162(m) of the Code and (ii) for compensation that is not "performance-based" within the meaning of Section 162(m) of the Code, but is payable during a transition period, as described in greater detail below, by a newly public company under a plan or agreement that was in existence prior to such company becoming public (the "IPO Transition Rule").