President Biden Targets Executive Pay, 162m in State of the Union

Eagle-eyed compensation professionals may have noticed that President Biden mentioned executive compensation in his March 7 State of the Union address and 2025 budget proposal. Alongside the political rhetoric, the President suggested that the Section 162(m) deduction cap for compensation exceeding $1 million should be broadened to all employees, not just top executives. 

Why it matters: While the budget proposal is aspirational and more of a political messaging tactic than an ironclad blueprint, it’s clear that executive pay will be under the microscope for the election season and beyond.

In addition to raising the corporate tax rate to 28% and quadrupling the stock buyback tax to 4%, the budget proposes that 162(m) should apply to all C corporations, including private companies. 

• By current law, public companies may not deduct pay over $1 million for NEOs (remember that in 2026, this will be expanded to the top 10 highest paid executives). 
  
  
• The budget proposal seeks to apply that limit to all employees (and for all compensation, not just salary) and would raise about $272 billion in revenue. 

What they’re saying: The Institute for Policy Studies and Americans for Tax Fairness followed up the budget release with a new report, “More for Them, Less for Us: Corporations that Pay Their Executives More Than Uncle Sam.” The report names 35 companies that “paid less in federal taxes…than they paid their top five executives,” and excoriates almost every aspect of executive pay from long-term incentives (windfalls) to stock buybacks (rigged). 

• The paper calls out “top hat” deferred compensation plans, incentives for tax efficiency, and the “stock options loophole” as further contributing factors to wealth inequity.

Bottom line: The President’s budget communicates the administration’s priorities, which will now be considered as Congress develops and passes the budget for 2025. Given the success of Trump-era cuts to 162(m) via the Tax Cuts and Jobs Act, it is not out of the realm of possibility that we may see further limitations on the deductibility of executive pay.