Section 162(m) "outside director" sample questionnaire.

• Author: Hevener, Mary B.
• Position: Includes text of sample questionnaire

Section 162(m) of the Internal Revenue Code generally limits a publicly held corporation's deduction for compensation paid to the chief executive officer and the four other highest paid executives to $1 million per executive per year. One exception to this limitation applies to certain "performance-based" compensation, provided, among other requirements, the committee establishing and administering the compensation arrangement consists solely of two or more "outside directors," within the meaning of section 162(m).

Treasury Regulations promulgated under section 162(m) contain a special transition rule for outside directors, which provides that the requirement is satisfied if the director is "disinterested" for purposes of Rule 16b-3 of the Securities Exchange Act of 1934. This special transition rule can only be relied upon until the first meeting of shareholders at which directors are to be elected that occurs on or after January 1, 1996.(1) After the end of this transition relief, a director will qualify as an outside director only if a number of detailed requirements are satisfied. The following sample questionnaire may be used by corporations in determining whether the members of, or nominees to, the corporation's compensation committee (or to the subcommittee that administers its performance-based...