Excessive Executive Compensation Creates Extreme Unfairness Between Senior Managers And Employees

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Many people argue that excessive executive compensation creates extreme unfairness between senior managers and employees. In other words, many executives are way over-paid than they should be. According to Wall Street Journal, the CEO of Apple Inc., Tim Cook’s 2015 total compensation was valued at $10.3 million (“Apple CEO Tim Cook 's 2015 Compensation: $10.3 Million”, 2016) – almost 200 times of an average salary-based worker’s compensation. The U.S. government has been making some effort facing this situation. In 1993, President Bill Clinton signed his first budget that was later enacted by Congress as section 163(m) of the Internal Revenue Code. Over 20 years has passed now, does this significant limitation in tax code actually worked? In order to answer this question, we need to first understand the current rules on the deductibility of compensation. Generally, employers can deduct salaries and wages expenses when they pay the employees under cash method of accounting, or when employees earn salaries and wages under accrual method of accounting. This general rule applies even when employers accrues compensation expense in a year but actually pays an unrelated party within 2 and a half months after year-end. As long as the amount is reasonable, employers can deduct the full compensation as an ordinary and necessary business expense. The reasonable amount test is typically assessed when the owner of the business also works in the business, or when an employee is related

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