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Executive pay trends and golden parachute tax: a collision on the horizon
1Ernst & Young's Human Capital Practice, Cleveland, Ohio, USA.
Benefits Quarterly
|March 16, 2004
Abstract:
Ironically, many corporations will likely discover that tying equity-based executive compensation more closely to performance will cost millions of dollars when there is a merger or acquisition. The reason: Internal Revenue Code Section 280G, which is designed to discourage "excess" parachute payments, often assesses a significantly higher toll on performance-based compensation than on time-vested equity payments. There is no magic remedy, but advance planning can often help mitigate the impact. This article describes the dilemma and suggests several approaches to the challenge.
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