Executive compensation and the Tax Reform Act of 1969 -- A Game with a new set of rules;

              Executive Compensation and the Tax Reform Act of 1969 —A Game with a New Set of Rules
by ROBERT G. SPEIDEL Partner, Pittsburgh Office
Presented before the Pittsburgh Tax Club, Pittsburgh—May 1970
ONE OF THE AREAS of tax planning in which the 1969 Tax Reform Act could have its greatest impact is that of compensating corporate ex­ecutives.
It seems to me that we really need to take a new look at some of the executive compensation patterns that have developed over the years. We may find many plans tailored to meet objectives no longer so impor­tant
as they once were.
• For example, an important element of many plans has been to provide capital gains potential through stock options and the like. Perhaps we have now reached the point where the advantage of capital gain income as compared with ordinary income is not enough to offset the disadvantages of some of the plans designed to give capital gains potential.
• Also, many compensation plans are designed to defer for a period of years or until retirement the time at which compensation in­come
is received and taxed. Here again, we may find that the ad­vantage
of doing this is not nearly so important as it once was.
CHANGES AFFECTING FUTURE PATTERNS
Before analyzing their effects, let us just recap briefly some of the 1969 Act changes that will influence the future pattern of executive com­pensation
plans.
• The most important change, in my view, is the new 50% maxi­mum
tax rate on earned income, starting in 1972. The maximum for 1971 is 60%. Deferred compensation is not eligible for this 50% maximum rate. Also, the amount eligible for the maximum rate can be reduced by so-called tax preference items such as the bargain element on the exercise of stock options and the excluded portion of capital gains.
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