WASHINGTON - The Internal Revenue Service's new pay regulations are having little effect on the compensation of most top executives.
Rather than comply with the new standards, 58% of companies surveyed recently by Pearl Meyer & Partners Inc., New York, decided to forgo tax deductions on a portion of top proxy officers' pay. Effective this year, public companies are barred from deducting pay of more than $1 million as a business expense unless it is based on performance measurements approved by shareholders.
The survey looked at 1994 proxy statements of 150 industrial and service companies with revenues of more than $1 billion. The rules apply to the top five officers on the compensation table of a company's proxy statement.
"Many companies are reacting by refusing to let the IRS 'assume a seat' on corporate boards," said Steven Hall, managing director.
Deferring pay until an officer retires and is no longer a proxy officer is also a popular strategy; 17% of companies are using deferrals to skirt the $1 million cap.
Fifteen percent of the 150 companies surveyed are paying salaries of more than $1 million; 43% did not secure shareholder approval for annual bonuses; 18% did not qualify restricted stock grants as performance-based; and 7% did not qualify long-term incentives for tax deductions.
On the flip side, 52% of the companies are actively qualifying one or more pay plans this year, according to the survey.