Tax rule holds many base salaries around $1M

— -- If you've ever wondered why so many CEOs make a base salary of $1 million a year — not including bonuses and stock options — it's because of an obscure tax rule known as Section 162(m).

The rule, signed into law 15 years ago, was designed to punish companies that paid top executives more than $1 million by taxing the company on anything above that at the corporate tax rate, currently in the 30% to 40% range.

But in an example of the law of unintended consequences, the rule actually ended up boosting CEO compensation because it penalized only base pay. Companies that paid CEOs tens of millions of dollars in incentive pay, such as bonuses and options, could deduct it as a pre-tax expense, just like the first $1 million in salary.

Now, the boards of directors of most big companies routinely structure the lion's share of CEO compensation as incentive pay, while doling out a base salary at or near the magical $1 million mark.

Yet, some CEOs still receive a base salary above $1 million.

"Most boards view the $1 million deductibility as not a huge item," says compensation consultant Ross Zimmerman of Exequity. "It's a low-lying issue on the radar."

That may be the case for large firms, but for smaller companies, the taxes on base pay above $1 million can mean real money.

Using a representative sample of 500 companies that the Securities and Exchange Commission selected to showcase a new technology for researching compensation, USA TODAY identified several CEOs making more than $1 million in base pay, even though their companies have $100 million or less in profit: