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.