The Influence of CEO Power and Public Outrage on I.R.C. Section 162(m) Compliance

• In Event: Tax

Abstract

Congress enacted Internal Revenue Code Section 162(m) to influence CEO compensation design. Section 162(m) ostensibly limited the tax deductions associated with executive compensation, allowing firms to deduct additional amounts if those payments met certain requirements. However, many firms elect to pay CEOs compensation that does not qualify for a tax deduction under §162(m). Our research question is twofold. Do powerful CEOs influence firm noncompliance with §162(m)? If so, does public outrage mitigate this influence? We provide evidence consistent with both of our hypotheses, i.e., non-tax deductible compensation, primarily salary in excess of $1 million, increases with proxies for CEO power and that public outrage weakens this relation.

Authors

• Amy J. N. Yurko, Duquesne University

• Steven Balsam, Temple University

• John H Evans III, University of Pittsburgh