Officer and Executive Compensation

Officer and executive compensation involves some of the touchiest issues related to the routine operations of a business.  The public’s recent outraged response to the topic is predictable, given that media tend to focus on the negative aspects of the high payroll and attractive benefit packages earned by certain directors and chief executive officers.

Don’t let your business become so drawn in by the hype that you overlook the most relevant aspect of officer and executive compensation – the law.  Although officer and executive compensation is generally considered a business decision, the company nonetheless must remain compliant with state and federal regulations.  Whether yours is a large, publicly traded corporation or a privately held start-up venture, compliance with compensation law, including the Internal Revenue Code, constitutes a vital part of your success.  While disclosure laws about compensation may vary based on the type of entity and the jurisdiction, the IRS still wants its portion of the remuneration your business offers to its officers and executives.

The Internal Revenue Code has grown increasingly complicated with regard to tax assessment for such compensation.  The IRS can challenge what a business chooses to pay in compensation to an officer or executive – meaning that during audits the IRS may ultimately question the validity of the company’s expenditures on your behalf.

When assessing the reasonableness of your compensation, the Internal Revenue Code considers all types of  benefits, such as stock options.  Incentive stock option (“ISO”) plans may subject you to an Alternative Minimum Tax, for instance, or you may face ordinary income tax if you exercise your stock options at a profit but don’t meet special holding period requirements.  You may have to deal with valuation of your stock options as well.

During an audit, the IRS often uses a five-prong test for ascertaining what constitutes reasonable pay for a specific position within a company:

  • The employee’s role in the company.
  • Comparison of pay with other companies’ pay.
  • The character and condition of the company.
  • Potential conflicts of interest.
  • And internal consistency in compensation.

If the IRS audit determines  that the amount expended on your behalf is not justified and consequently disallows a portion or all of  the company’s deduction, then the burden falls to you and the company to prove the legitimacy of your compensation. If your business has been hit with a heavy tax assessment, complete with penalties and interest, because of issues regarding executive and officer compensation, consult with our team of professionals at Law Offices of Christy Lee, P.C.

  • We will assess the dynamics of your company and provide informed counsel involving pay and benefits.
  • We will advise you concerning all aspects of compensation, from disclosure, incentives, bonuses, and severance packages, to deferred compensation and stock options.
  • We will intercede with the IRS on your behalf, working to protect your interests while we negotiate the best possible resolution for you.
  • And we also will assist you in making informed decisions related to future officer and executive compensation so that you can take full advantage of benefits as allowed by the Internal Revenue Code.

Contact us today to discuss how we can assist with your concerns involving officer and executive compensation. Professional guidance from Law Offices of Christy Lee, P.C., helps ensure that your company observes the Internal Revenue Code while simultaneously providing the benefits that your officers and executives have earned.