NVIDIA 2013 Annual Report Download - page 66

48
Tax and Accounting Implications
Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, limits the
amount that we may deduct from our federal income taxes for remuneration paid to our CEO and three most highly
compensated executive officers (other than our CFO) to $1 million per person covered per year, unless certain requirements
are met. Section 162(m) of the Internal Revenue Code provides an exception from this deduction limitation for certain
forms of “performance-based compensation,” including the gain recognized by an executive officer upon the exercise of
qualifying compensatory stock options. While our Compensation Committee is mindful of the benefit to NVIDIA’s
performance of full deductibility of compensation, our Compensation Committee believes that it should not be constrained
by the requirements of Section 162(m) of the Internal Revenue Code where those requirements would impair flexibility in
compensating our executive officers in a manner that can best promote our corporate objectives. Therefore, our
Compensation Committee has not adopted a policy that requires that all compensation be deductible and approval of
compensation, including the grant of stock options or other “performance-based compensation” to our executive officers,
by our Compensation Committee is not a guarantee of deductibility under the Internal Revenue Code. Our Compensation
Committee intends to continue to compensate our executive officers in a manner consistent with the best interests of NVIDIA
and our stockholders.
Our Compensation Committee also considers the impact of Section 409A of the Code, and in general, our executive
plans and programs are designed to comply with the requirements of that section so as to avoid the possible adverse tax
consequences that may arise from non-compliance.
Stock-based compensation cost is measured at grant date, based on the fair value of the grants, and is recognized as an
expense over the requisite employee service period. For accounting purposes, we use a binomial option pricing model to
estimate the fair value of each stock option grant and the closing price of our common stock on the date of grant, minus a
dividend yield discount, as the fair value of RSUs.