Amber, a publicly held corporation, had been paying its chief executive officer (CEO) an annual salary of $900,000. Amber instituted a performance-based compensation plan, effective January 1, 2017, that increased the CEO's 2017 compensation by $300,000. It is anticipated that the plan will provide an additional $350,0000 in 2019. Prepare a letter to Amber's board of directors explaining how much of the CEO's 2019 compensation is deductible and the consequences of any changes that might be made to the compensation plan in 2019. Address the letter to the board chairperson, Angela Riddle, whose address is 100 James Tower, Cleveland, OH 44106. Dear Ms. Riddle:
I am responding to your inquiry regarding the current compensation plans for Amber Corporation's president. The Board agreed to amend the president's compensation plan effective January 1, 2017, to allow an increase in the compensation she can earn through a performance-based compensation plan. In 2017, the president earned an additional $300,000 under her revised contract. This amount increased to $350,000 in 2018 and 2019, and it is projected that she will increase her earnings by $350,000 under this plan in 2020.
In general, any salary paid to the president in excess of $_ is deemed excessive executive compensation and not deductible. Before 2018, compensation earned under a performance-based compensation option was not subject to this limitation. Therefore, in 2017, Amber deducted $__ as compensation.

The Board agreed to amend the president's compensation plan effective January 1, 2017, to allow an increase in the compensation she can earn through a performance-based compensation plan.

In 2017, the president earned an additional $300,000 under her revised contract. This amount increased to $350,000 in 2018 and 2019, and it is projected that she will increase her earnings by $350,000 under this plan in 2020.

In general, any salary paid to the president in excess of $_1 million______ is deemed excessive executive compensation and not deductible. Before 2018, compensation earned under a performance-based compensation option was not subject to this limitation. Therefore, in 2017, Amber deducted $__1.2 million______ as compensation.

I hope that the above clarifies the issue.

Yours sincerely,

Tony Ohagwam, FCCA

Chief Finance Officer

Explanation:

This is an official letter to the Chairperson of the Board of Directors of Amber Corporation. In this letter, the issue of the President's compensation and the tax deduction for the corporation is clearly presented. It is the writer's hope that the subjects of the enquiry are adequately resolved.