The compensation mix of the CEOs at large ($Billion+ Revenues) public companies typically is comprised of five different remuneration or value propositions:  base salary, annual incentives, long-term incentives, supplemental (non-qualified) benefits, and perquisites.  And, the size of the slices of this pie were nearly 50% base salary and the total of annual incentives and long-term incentives (at grant) comprising nearly 50% also.  The supplemental benefits and perquisites would fill out the pie with single digit percentages.

Prior to the new tax law, Section 162(m) of the U.S. Tax Code had limited tax-deduction eligibility unless those dollars above $1 million were performance-based.  This had the effect of creating an artificial ceiling on CEO base salary (guaranteed compensation) at $1 million.  Nearly all large public companies abided by the fiscally-responsible decision.  The new tax law removes this feature as all dollars in excess of $1 million are taxable to both the company and executive.

We envision the new tax will have the effect of enticing boards to break through this ceiling and start offering compensation packages anchored with seven-figure base salaries

The overriding question should be:  Will these actions have the results of shifting compensation dollars from variable (performance-based) to fixed costs (salary) and keeping the size of the pie the same, or will the percentages remain proportional (and the pie just gets bigger).