Corporate governance benefits. A board can delegate to an independent committee responsibility for:

Tax deductions. Section 162(m) of the Internal Revenue Code prohibits publicly held corporations from deducting more than $1 million per year in compensation paid to certain key employees (26 U.S.C. § 162(m)). Until recently, deductions for qualified performance-based compensation could be excluded from the calculation of the $1 million limit if, among other criteria, the performance goals were approved by a compensation committee comprised of two or more outside directors and the committee certified that the performance goals were achieved before the compensation was paid. The Tax Cuts and Jobs Act (TCJA) made significant changes to Section 162(m), including the elimination of the performance-based compensation exception. However, the changes do not apply to compensation provided under a written binding contract that was in effect on November 2, 2017 and is not materially modified on or after that date (a grandfathered arrangement). While are few grandfathered arrangements left, the outside director requirement continues to apply with respect to a compensation committee that certifies the attainment of performance goals for grandfathered awards under the qualified performance-based compensation exception.

Exclusion from short-swing profit provisions. The Securities Exchange Act of 1934, as amended, provides that a company can recover any profits made by any officer or director who buys and sells the company's stock within a six-month period. However, any equity compensation award made to an officer or director is excluded from the short-swing profit provisions if the award is made by a committee comprised of two or more non-employee directors.