Clinton Proposes Limit on Executive Pay Deduction

Outlining its plan to curb runaway pay for corporate chieftains, the Clinton Administration on Thursday proposed giving shareholders a role in setting executive compensation.

But many forms of pay would not be affected by the Administration’s policy of denying tax deductions for amounts in excess of $1 million that corporations pay executives.

The Treasury Department estimated that the plan would raise about $600 million over five years, compared to the $1.3 billion over four years that President Clinton projected last year in his campaign book “Putting People First.” Congressional tax analysts reached a different conclusion in February, estimating that any effect on revenue would be “negligible.”

Under current law, corporations can deduct multimillion-dollar executive pay packages from their income taxes as a business expense. Riding a wave of public outrage about some fat executive pay checks and stock option grants, Clinton has argued that the government should stop subsidizing pay of more than $1 million.

The plan the Administration unveiled Thursday would limit deductions for only the pay of the chief executive and the four other most highly compensated officers in a publicly traded corporation. Neither the salaries paid by privately owned corporations nor the pay of employees outside the executive suite would be affected.

The Administration said it would not count stock options toward the $1-million limit. Stock options, a widely used form of compensation, can be extremely valuable.

However, under Clinton’s plan, if corporations wanted to claim tax deductions for stock options, they would have to get shareholders’ advance approval to award the options to the individual executive.