Michael Doran is Roy L. & Rosamond Woodruff Morgan Professor of Law at University of Virginia School of Law. This post is based on his recent article, forthcoming in the Southern California Law Review. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).
This article sets out the case for repealing the $1 million tax cap on executive pay. In 1993, Congress enacted section 162(m) of the Internal Revenue Code as an aggressive effort to limit what companies pay their executives. Section 162(m) caps at $1 million the corporate deduction for annual compensation paid to senior managers. This limitation, proponents argued, would rein in manager pay, push companies to link executive compensation to corporate and individual performance, restore balance between the pay of executives and the pay of rank-and-file workers, or, if nothing else, impose a significant penalty on companies that lavish high levels of performance-insensitive compensation on their senior managers. More than two decades on, Section 162(m) has proven a spectacular policy failure.
