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The Corporate Executive, Vol.
XXIII, No. 1
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Deductibility of Compensation for Tax PurposesSection 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for compensation over $1,000,000 paid for any fiscal year to the Company’s highest paid executive officers, however, the statute exempts qualifying performance-based compensation from the deduction limit when specified requirements are met. In general the Compensation Committee has structured awards to executive officers under the Company’s incentive programs to qualify for this exemption. However, the Compensation Committee retains the discretion to award compensation that exceeds Section 162(m)’s deductibility limit. In fiscal 2008, the Company’s compensation to the CEO, the CFO and the President exceeded the Section 162(m) deductibility limits. The CEO’s total compensation exceeded the deductibility limit by $______, which represented a cost to the company of $________ as a result of the lost tax deduction. The CFO’s compensation exceeded the limit by $_______, resulting in a cost to the company of $_______, while the President’s income exceed the limit by $_______, costing the company $_________ due to the lost tax deduction. The aggregate cost of the Compensation Committee’s decision to exceed the Section 162(m) deductibility limit in fiscal 2008 was $________. The Compensation Committee believed in the past that these amounts, including the cost of the lost tax deduction, were justifiable in order to be competitive with peer companies. As part of our overall review of executive compensation in light of the current difficult economic environment and the fact that it has been necessary to lay off employees in these difficult times, the Compensation Committee has now concluded that it is not appropriate to exceed the limit. We are pleased to report that our CEO and NEOs have agreed to reductions in their compensation to remain under the IRS limit. There was no increase in qualifying “performance–based compensation” to offset these reductions.
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