TAX POLICY EFFECTIVENESS AS MEASURED BY RESPONSES TO LIMITS PLACED ON THE DEDUCTION OF EXECUTIVE COMPENSATION

Internal Revenue Code §162(m), which applies to public corporations, was designed to reduce executive compensation and strengthen its relation to performance. This article examines the effectiveness of the code section. While the results reflect a continual increase in the compensation of a group of key executives for the years reviewed, evidence is found in support of the performance-based objectives of §162(m). Findings indicate a shift away from salary and toward bonus payments over the time period examined. Further, the link between compensation and performance appears to have strengthened slightly after the enactment of §162(m).