Stock-based compensation plans; $1 million limit on employee remuneration

Stock-based compensation plans; $1 million limit

The Treasury Department and IRS today released for publication in the Federal Register final regulations (T.D. 9716) relating to the deduction limit for certain employee remuneration in excess of $1 million.

Related content

Today’s regulations [PDF 227 KB] finalize regulations that were proposed in June 2011, to clarify the effects of stock-based compensation plans of publicly held corporations on the $1 million limitation for employee remuneration under section 162(m).

The final regulations reflect changes made in response to comments—changes that are intended to clarify provisions and not intended to be substantive changes.


A notice of proposed rulemaking (REG-137125-08) was issued in June 2011 concerning the deduction limitation for employee remuneration in excess of $1 million. The preamble to the proposed regulations stated that these regulations were not intended to make substantive changes to the existing regulations under section 162(m) but were intended to:

  • Clarify that qualified performance-based compensation attributable to stock options and stock appreciation rights must specify the maximum number of shares with respect to which options or rights may be granted to each individual employee
  • Clarify the application of a transition rule for taxpayers that are not publicly held corporations but then become publicly held corporations

Final regulations

The preamble to today’s final regulations notes that comments were received concerning the 2011 proposed regulations.

In response to some of the comments, changes have been accepted and made to the final regulations, including:

  • A clarification that a plan satisfies the requirement in the regulations to state the maximum number of shares that may be granted to any employee if the maximum number of shares of all equity-based awards, including stock options, stock appreciation rights, restricted stock, and restricted stock units (RSUs) that may be granted to an employee is stated.
  • A statement that the final regulations apply to compensation attributable to stock options and stock appreciation rights granted on or after June 24, 2011 (the date of publication of the proposed regulations).
  • A transition rule is available for a non-public corporation that becomes publicly held, with respect to compensation payable under a restricted stock unit (RSU) arrangement granted after the date of publication of the final regulations—scheduled for Tuesday, March 31, 2015. For RSUs granted after that date, compensation must be paid, not merely granted, before the corporation becomes publicly held in order for the 162(m) limitation not to apply.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal



KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.