Q. I read your article on reasonable compensation with interest (12/26/05 issue). I thought there was a maximum amount that any employee, other than a CEO or company president, could be paid. Is that true? E.M., SeattleA. Sort of. The IRS generally places no limit on the amount of compensation a company can pay one of its employees and deduct as a business expense. However, compensation amounts must be reasonable, which is a standard that depends on a number of factors. An unfavorable exception applies to deductions for compensation paid by a publicly traded company to its chief executive officer or its four highest-paid officers (other than the CEO). In this case, deductible compensation amounts are generally limited to $1 million a year per executive. Certain exceptions exist for performance-based compensation that is approved by a majority shareholder vote and verified by the board of directors. Tip: No such limits apply to closely held companies.
Get weekly updates on breaking news and business advice to help you advance your career! The week's top stories and resources will be sent right to your inbox. Choose the topics you're interested in:
We value your Privacy.