Examining the Effects of the TCJA on Executive Compensation

60 Pages Posted: 17 Jun 2019 Last revised: 29 Apr 2022

See all articles by Lisa De Simone

Lisa De Simone

University of Texas at Austin

Charles McClure

University of Chicago Booth School of Business

Bridget Stomberg

Indiana University - Kelley School of Business

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As part of the “Tax Cuts and Jobs Act” (TCJA), Congress repealed a long-standing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

Suggested Citation

De Simone, Lisa and McClure, Charles and Stomberg, Bridget, Examining the Effects of the TCJA on Executive Compensation (April 15, 2022). Kelley School of Business Research Paper No. 19-28, Available at SSRN: https://ssrn.com/abstract=3400877 or http://dx.doi.org/10.2139/ssrn.3400877

Lisa De Simone

University of Texas at Austin ( email )

2110 SPEEDWAY
Stop B6400
Austin, TX 78705
United States

HOME PAGE: http://www.lisa-desimone.com

Charles McClure

University of Chicago Booth School of Business ( email )

7737024885 (Phone)

Bridget Stomberg (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

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