Over the past four decades, persistent concerns about executive compensation have prompted the US Congress to enact penalty taxes aimed at various executive-pay practices. First came the penalties for golden parachutes in 1984. Responding to perceived abuses during the ‘merger wave’ of the 1980s, Congress enacted rules denying a tax deduction to a company making a large golden-parachute payment and imposing a 20-percent surtax on the executive who receives the payment. Next came the $1 million deduction cap in 1993. Amid broad criticism that U.S. executives were ‘paid like bureaucrats’, Congress enacted a rule denying a corporate tax deduction for executive pay over $1 million, but with broad exceptions for performance-based compensation and deferred compensation. Then came tax penalties for deferred compensation in 2004. After the collapse of the Enron Corporation and revelations that certain executives had withdrawn their deferred compensation in anticipation of the company’s failure, Congress imposed a 20-percent surtax and an interest charge on any executive whose deferred compensation fails to meet certain statutory requirements, including requirements about when payment can be made. And most recently, Congress in 2017 repealed the exceptions under the $1 million deduction cap for performance-based compensation and deferred compensation.
Michael Doran, Executive Compensation, Corporate Governance, and Tax Policy, Oxford Business Law Blog (2022).