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Reforming the Taxation of Deferred Compensation


Ethan Yale


University of Virginia School of Law

Gregg D. Polsky


University of North Carolina (UNC) at Chapel Hill - School of Law


North Carolina Law Review, Forthcoming
Georgetown Law and Economics Research Paper No. 913055
Minnesota Legal Studies Research Paper No. 06-29

Abstract:     
Executive pay is currently a topic of significant interest for policymakers, academics, and the popular press. Just weeks ago, in reaction to widespread press reports and academic criticism of extravagant executive perquisites, the SEC proposed new regulations designed to change fundamentally the manner in which executive compensation is reported to share-holders. Despite all of this attention, one significant aspect of executive deferred compensation has gone virtually unnoticed - the federal tax rules governing this form of compensation are fundamentally flawed and must be extensively over-hauled. These rules are flawed because they often create a significant incentive for companies and their executives to structure deferred, rather than current, compensation, thereby producing highly inefficient and inequitable results. This Article addresses potential legislative reforms that would remedy this problem by neutralizing the tax treatment of current and deferred compensation. While this neutrality goal, which was part of the recent proposals made by President Bush's Advisory Panel on Tax Reform, is easy to describe in general and conclusory terms, the devil is in the details. There has been little serious academic analysis of how to implement a set of tax rules that would create neutrality while avoiding undue complexity. This Article attempts to fill that void.

Number of Pages in PDF File: 66

Keywords: taxes, executive compensation, corporate governance

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Date posted: June 30, 2006  

Suggested Citation

Yale, Ethan and Polsky, Gregg D., Reforming the Taxation of Deferred Compensation. North Carolina Law Review, Forthcoming; Georgetown Law and Economics Research Paper No. 913055; Minnesota Legal Studies Research Paper No. 06-29. Available at SSRN: http://ssrn.com/abstract=913055

Contact Information

Ethan Yale (Contact Author)
University of Virginia School of Law ( email )
580 Massie Road
Charlottesville, VA 22903
United States

Gregg D. Polsky
University of North Carolina (UNC) at Chapel Hill - School of Law ( email )
Van Hecke-Wettach Hall, 160 Ridge Road
CB #3380
Chapel Hill, NC 27599-3380
United States
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