Question: General Motors Corporation in its 1997 Proxy Statement to shareholders
General Motors Corporation, in its 1997 Proxy Statement to shareholders, stated the following: “To the extent it is practicable and consistent with the Corporation’s executive compensation philosophy, the Committee intends to comply with Section 162 (m) of the Internal Revenue Code (and any regulations promulgated there under) in order to preserve the deductibility of performance-based compensation in excess of $1 million per taxable year to each of the Named Executive Officers. . . . If compliance with the Section 162(m) rules conflicts with the compensation philosophy or is deemed not to be in the best interests of shareholders, the Committee will abide by the compensation philosophy, regardless of the tax impact of such actions.” Why might noncompliance with Section 162(m) be in the best interests of shareholders (because by receiving a tax deduction for compensation, the firm saves taxes, which increases cash flows)?
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