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Section 162(m)
Section of the Internal Revenue Code that restricts the corporate tax deduction for compensation to $1 million per year for each senior executive. (IRS Notice 2007-49 defines the covered executives as the CEO and the three highest-paid executives apart from the CEO and the CFO.)

In certain circumstances, stock options and restricted stock are not included in the compensation calculation when (1) they are performance-based and have been approved by shareholders and (2) the company is not receiving government help under TARP.

Standard time-vested stock options with an exercise price equal to FMV are considered performance-based, while restricted stock would need performance-vesting features. Discounted stock options, whether from intentional backdating or from an approved stock grant, do not meet the performance-based exception.

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