Examining the Effects of the TCJA on Executive Compensation
60 Pages Posted: 17 Jun 2019 Last revised: 29 Apr 2022
Date Written: April 15, 2022
Abstract
As part of the “Tax Cuts and Jobs Act” (TCJA), Congress repealed a long-standing
exception that allowed companies to deduct executives’ qualified performance-based
compensation in excess of $1 million. The purpose of this study is to examine whether Congress
achieved its stated objective of reversing a shift in executive compensation away from cash
compensation and towards performance pay, which Congress believed led executives to focus on
short-term results rather than the long-term success of the company. Across a battery of tests,
including a difference-in-differences design that exploits the staggered time-series
implementation of the deduction limit, we find evidence compatible with the new deduction limit
having no effect on executives’ salary, performance pay or total compensation, inconsistent with
Congressional intent.
Keywords: taxes, executive compensation, TCJA
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