But not Robert Nardelli, the home-improvement retailer's chief executive. Under his employment contract, Home Depot picks up a big chunk of his federal and state income taxes. Specifically, the company is obliged to reimburse its CEO for taxes due on a slew of perks, including a high-end luxury car, his family's travel on Home Depot jets and forgiveness of a $10 million loan. Last year, these payments amounted to at least $3.3 million, topping Mr. Nardelli's $2 million base salary.

Amid soaring CEO compensation, a number of companies are paying extra sums to cover executives' personal tax bills. Many companies are paying taxes due on core elements of executive pay, such as stock grants, signing bonuses and severance packages. Others are reimbursing taxes on corporate perquisites, which are treated as income by the Internal Revenue Service. They run the gamut from personal travel aboard corporate jets to country-club memberships and shopping excursions.

"This smacks of Leona Helmsley-like treatment, that only little people pay taxes," says Patrick McGurn, an executive vice president of Institutional Shareholder Services Inc., an influential adviser to big investors that often critiques companies' corporate-governance practices. For these top executives, he says, companies "are removing taxes from the list of inevitable life experiences, leaving only death."

In its 2005 proxy statement, Home Depot didn't disclose many of the perks it must give Mr. Nardelli, or that the company is required to reimburse him for taxes related to those perks. The company provided specifics of these benefits and the gross-ups in his employment agreement, which was attached to a 2001 regulatory filing.

A spokesman for Atlanta-based Home Depot wouldn't discuss the details of Mr. Nardelli's compensation. In a written statement, the spokesman says: "Consistent with the company's philosophy of attracting and retaining the highest performing leadership available, gross-up payments are sometimes utilized as a part of compensation to achieve a net after-tax effect." He also says the company "fully complies" with disclosure rules.

Gross-ups first started gaining widespread acceptance in the 1980s after Congress slapped a 20% special tax on multimillion-dollar "golden parachute" payments for executives who lost their jobs in mergers. At the time, Congress was reacting to public outrage about corporate pay packages. It designed this new "excise" tax to kick in if an executive's payout equalled or exceeded three times his average compensation over the prior five years. The excise tax is levied on top of regular income tax, which affected executives usually pay themselves.

Instead of curbing pay, the law had the opposite effect. Some companies adopted gross-up plans to cover the new tax and eventually that became common practice. In part, consultants say, boards were trying to make the severance process fairer. Because of a quirk in the law, executives paid the same amount of severance could end up being hit with widely varying amounts of excise tax depending on what they earned in previous years.

In an effort to shield executives from any tax bite on their pay, gross-ups can quickly spiral into huge sums. When a company reimburses executives for their tax payments, that creates new taxable compensation. The company then has to cover taxes on that new amount, which creates yet more taxable pay, and so on. The spiral ends when the ever-decreasing amount of new income reaches zero, or close to it.

The bottom line: Grossing up an executive for taxes on $1 million can easily cost an additional $700,000 to $900,000. In some circumstances, gross-up reimbursements can be more than double the covered pay.

Companies say they have to offer generous pay packages, including gross-ups, to attract top executive talent. For most corporate executives, these tax benefits are often a relatively small portion of total pay.

Tax gross-ups have proliferated for one major reason, many compensation experts say: They allow companies to quietly pay more to top managers at a time when executive compensation is increasingly controversial. The current rules don't require companies to disclose tax reimbursements separately in pay tables given to shareholders.

Instead, gross-ups tend to get lumped into a category called "other annual compensation" in companies' proxy statements. The details are then relegated to densely worded footnotes. Even there, some companies don't disclose the exact amounts of gross-up payments.