Expansion of denial of deduction for certain excessive employee remuneration

(a)

Expanded application of deduction denial if pay fairness requirement not met

Section 162(m) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

(7)

Special rule in case of companies not meeting pay fairness requirement

(A)

In general

In the case of a publicly held corporation which does not meet the pay fairness requirement of subparagraph (B) for the taxable year— (i)no deduction shall be allowed under this chapter for applicable employee remuneration with respect to any employee to the extent that the amount of such remuneration for the taxable year with respect to such employee exceeds $1,000,000, and (ii)paragraph (4) shall be applied without regard to subparagraphs (B), (C), and (D) thereof.

For purposes of the preceding sentence, the term employee includes any officer or director of the taxpayer and any former officer, director, or employee of the taxpayer.

(B)

Pay fairness requirement

The pay fairness requirement of this subparagraph is satisfied if— (i) (I)the average compensation paid by the taxpayer to or for all applicable United States employees for the taxable year, exceeds (II)the inflation and productivity growth adjusted average of such compensation for the preceding taxable year, and (ii)the aggregate compensation paid by the employer to or for all applicable United States employees for the taxable year is not less than the aggregate of such compensation for the preceding taxable year. (C)

Applicable United States employee

For purposes of this paragraph, the term applicable United States employee means, with respect to any taxable year, any employee— (i)whose services with respect to the employer are substantially all performed within the United States, and (ii)whose compensation from the employer for the taxable year does not exceed the dollar amount in effect under section 414(q)(1)(B)(i) with respect to the calendar year in which such taxable year begins. (D)

Inflation and productivity growth adjusted average

The inflation and productivity growth adjusted average of compensation under subparagraph (B)(i)(II) for any taxable year shall be determined by multiplying— (i)the average of the compensation paid by the taxpayer to or for all applicable United States employees for the taxable year, by (ii)the sum of the cost-of-living adjustment and the productivity adjustment for the taxable year. (E)

Cost-of-living adjustment

For purposes of subparagraph (D)(ii), the cost-of-living adjustment for any taxable year shall be the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting the second preceding calendar year for calendar year 1992 in subparagraph (B) thereof. (F)

Productivity adjustment

For purposes of subparagraph (D)(ii)— (i)

In general

The productivity adjustment for the taxable year shall be an amount (expressed as a percentage) equal to the average annual increase in the business productivity index for the period beginning with calendar year 2000 and ending with the calendar year preceding the calender year in which the taxable year begins. (ii)

Business productivity index

The term business productivity index means the nonfarm business productivity index published by the Bureau of Labor Statistics as adjusted by the Secretary to account for depreciation. (G)

Compensation

For purposes of this subparagraph, the term compensation means, with respect to any employee, the sum of— (i)the employee’s wages on which the tax under section 3101(b) is imposed, plus (ii)any amount described in paragraph (9), (11), (12), or (14) of section 6051(a) with respect to the employee. (H)

Aggregation rules

Rules similar to the rules of paragraph (5)(B)(iii) shall apply for purposes of this paragraph. (I)

Regulations

The Secretary may prescribe such regulations as are necessary to carry out the purposes of this paragraph, including adjustments to the pay fairness requirements of subparagraph (B)— (i)to prevent avoidance of this paragraph through changes in the composition of the taxpayer’s workforce, and (ii)to account for significant, non-tax-motivated changes in the size and composition of the taxpayer’s workforce (including mergers, spinoffs, or changes in the occupational composition of a taxpayer’s workforce).

(b)

Modification of definition of covered employees

(1)

In general

Paragraph (3) of section 162(m) of such Code is amended— (A)in subparagraph (A), by striking as of the close of the taxable year, such employee is the chief executive officer of the taxpayer or is and inserting such employee is the chief executive officer or the chief financial officer of the taxpayer at any time during the taxable year, or was, (B)in subparagraph (B) by striking (other than the chief executive officer) and inserting (other than any individual described in subparagraph (A)), and (C)by striking or at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting , or, and by adding at the end the following:

(C)was a covered employee of the taxpayer (or any predecessor) for any preceding taxable year beginning after December 31, 2014.

(2)

Technical amendment

Section 162(m)(3)(B) of such Code is amended by striking 4 highest and inserting 3 highest. (c)

Applicable employee remuneration paid to beneficiaries, etc

Paragraph (4) of section 162(m) of such Code is amended by adding at the end the following new subparagraph:

(H)

Special rule for remuneration paid to beneficiaries, etc

Remuneration shall not fail to be applicable employee remuneration merely because it is includible in the income of, or paid to, a person other than the covered employee, including after the death of the covered employee.

(d)

Expansion of applicable employer To include non-Listed public companies

Paragraph (2) of section 162(m) of such Code is amended to read as follows:

(2)

Publicly held corporation

For purposes of this subsection, the term publicly held corporation means any corporation which is an issuer (as defined in section 3 of the Securities Exchange Act of 1934)— (A)that has a class of securities registered under section 12 of such Act, or (B)that is required to file reports under section 15(d) of such Act.

(e)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2014.