The IRS recently released final regulations (T.D. 9716) that clarify two
issues under Section 162(m), which limits a public
corporation's compensation deduction to $1 million per year for
each covered employee.
The first issue is regarding the requirements a stock option or
stock appreciation right (SAR) plan must meet to qualify as
performance-based compensation. Performance-based compensation is
excludible from the $1 million limit under Section 162(m). The
final regulations clarify that the stock option or SAR plan must,
among other things, specify the maximum number of shares related to
which options or SARs may be granted to any individual employee
during a specified period. To provide some flexibility within
plans, the final regulations state that this requirement is met if
the plan specifies a maximum number of shares related to options,
SARs, restricted stock, restricted stock units and other
equity-based awards that may be granted to any individual
