CEO's Blog

President Biden Tax Reforms -Exec Comp Rules Changes -ESG Proxies

Executive Compensation Rules Changed -ESG Proxies

Hi, 

I wanted to quickly aware of my Compensation Committee Chairs, Chairman of the Board, and CEOs of Public Companies learners that the historic $1.9 Trillion Bill signed this week by President Biden has Executive Compensation Rules Changed For Ever Effecting Future Proxies and ESG Compensation Reporting. 

$1 Million Plus Salaried Individuals Scope, Definition and Reporting Expanded for More than Top 5 Salaried Executives. 

Proxy Season already had COVID Now Compensation More In Focus

Internal Revenue Code Section 162(m) limits the deduction that a publicly-held corporation can take with respect to compensation paid to each of its “covered employees” to $1 million per year. Current law provides that “covered employees” are the company’s Chief Executive Officer, Chief Financial Officer, and next three highest-paid executive officers in any given year, plus any individual who has been a “covered employee” for any prior tax year beginning on or after January 1, 2017.

Starting with tax years that begin on or after January 1, 2027, the ARPA expands the number of “covered individuals” to also include the next five highest-paid officers. These additional five individuals, however, do not follow the “once a covered employee, always a covered employee” rule. Rather, they are only considered a covered employee so long as they are one of the “next top five” paid individuals for the particular year. In other words, public companies will have to keep track of two lists of covered employees: (1) their “permanent list,” which covers the CEO, CFO, and next three highest-paid officers each year and who, once on the list of covered employees, will always remain on the list, and (2) a “current year list,” which will include those officers who are the next five top paid officers for the year in question, and which may change from year to year

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