Bonuses and performance-based pay have become popular for executive compensation packages because the U.S.tax laws do not allow firms to deduct more than $500,000 of an executive's salary.

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The U.S.tax law does not allow companies to deduct more than $1 million of an executive's salary; therefore,most firms keep it below that amount.It is because of the million dollar deduction maximum that bonuses and performance-based pay have become popular.

Bonuses and Performance-Based Pay Have Become Popular for Executive Compensation