162(m)

Reading my former employer's proxy statement reminded me of one of my pet peeves, section 162(m) of the Internal Revenue Code. This provision, passed in 1993, prevents companies from deducting as a business expense compensation paid to top executives in excess of $1 million dollars unless the compensation is performance based. The purported intent was to discourage excessive executive pay. However stock option grants are considered to be performance based. The result was companies started giving out more stock options actually increasing executive pay among other bad effects. This link refers to these perverse results as unintended. In my opinion this is overly generous to Congress and Clinton, the results were readily predictable. This happens all too often, special interests find a way to put a benign spin on some malign proposal and thereby get it enacted.