Ensuring Compensation Committees Understand the Impact of the Excise Tax on Provider and Executive Compensation

Abstract

The tax law changes that Congress enacted and the President signed into law in late December 2017 included a new employer-paid excise tax that applies to annual compensation above $1 million provided to certain of the highest paid employees of most tax-exempt organizations. The excise tax may also apply to severance paid to a broader group of employees. The law requires these organizations—and as a result, their boards or compensation committees—to understand the basics of the law as well as the process by which executives and employees are identified and their compensation and severance is reviewed. This article discusses the key concepts of the excise tax and helps guide committees on the steps in the process that committees should take, so that they are in a position to understand if—and when—the excise tax could apply.