Senators To Target Executive Benefit

[onehandle]

The Senate Finance Committee is considering a proposal to sharply limit the earnings corporate executives and other highly paid employees can place tax-free into deferred compensation plans, one of the most popular executive benefits in corporate America.

Under the proposal, expected to be discussed today by committee members, an individual taxpayer could defer no more than $1 million annually in compensation, beginning this year. The shift in tax policy would be likely to affect top executives at hundreds of corporations and would raise taxes on some of the nation's wealthiest workers by an estimated $806 million over 10 years.

The proposal tracks rhetoric that some Democrats employed during the midterm elections, when they portrayed the Republicans who controlled Congress as being too close to special interests and the wealthy. It also offers a response to controversies that have erupted over executive pay in recent months, including scandals over backdated stock options and multimillion-dollar compensation packages paid to current and former corporate chieftains.

snip...

Limiting deferred compensation would be "earthshaking" to American executives, said Patrick McGurn, executive vice president of Institutional Shareholder Services in Rockville.


http://www.washingtonpost.com/wp-dyn/content/article/2007/01/16/AR2007011601577.html

[sutz12]

1. Good start....

I think they need their Earth shaken up a bit.

[Norquist Nemesis]

2. Good! It's about time. n/t

[dmallind]

3. Good idea BUT

I think often on DU many people overestimate the scope of extreme executive pay and this is a good moment to reflect on that. It seems like any time there are job cuts or whatever the kneejerk reaction is that executive pay is a central issue and if it were cut jobs could be saved.

In reality though the number of people making this kind of money in pay and option grants etc is staggeringly low. Reflect for a moment on the numbers here - $806M in 10 years. An average of $80.6M a year - backloaded at that no doubt as pay will rise in 10 years - for ALL the executives who would pay additional taxes, combined (and obviously they are all at the top 35% marginal rate at this point!).

I have NO problem at all taxing exceptionally high incomes and I would personally suggest ending ALL deferred income and creating an additional "super wealthy" marginal rate of, say, 50% which was legislatively pegged to increase every year based on impacting ONLY the top 0.1% - and debated and sold as such. However that does not mean cutting executive pay would do anything material to either the jobs market or the federal budget as a whole.

I'm not as keen as many at DU on soaking the "rich" because A) I often see such ideas and terms used for people who are simply comfortable, not close to "rich" and B) right wing rhetoric aside, extremely high marginal rates for higher earners DO cause a lack of incentive for increased production. I am - barely - old enough to remember the brain drain of the 60s and 70s in England when marginal rates of 95% on really rather pedestrian upper incomes lost that nation a huge number of innovators, entrepreneurs and entertainers. Why risk an investment to make a million if you only get to keep $50K? Now at say a 50% rate you get to keep $500K - a much bigger incentive while still raising tax revenues.

[cap]

5. These bills are directed at the ultra-rich

not at your friendly neighborhood doctor or lawyer (mere 200-500K/year folk).

[JerseygirlCT]

14. I don't know about taxing the super-rich at a higher

rate. But I do think we need to close loopholes like this one that allow them to avoid taxes.

[aquart]

4. American executives are in need of a good shaking.

Do it until their greedy gold teeth rattle.

[Wilms]

6. K & R n/t

[NoAmericanTaliban]

7. Good idea, but let's not forget getting rid of tax shelters

& off shoring of money by corporations to avoid taxes.

[truthisfreedom]

8. Exactly.

This hemmhorages more money from our tax coffers than we could imagine.

[Rosa Luxemburg]

9. lock the gates so they can't 'do a runner'

perhaps they can donate their 'booty' to healthcare for the have-nots

[Tatiana]

10. Great idea.

I'd also like to see off-shore tax-evaders targeted as well.

[w4rma]

11. Very very good. (nt)

[Lasher]

12. It's good to see this symptom treated but I wish they would cure the disease

In publicly traded corporations the shareholders, not the executives, are the owners. The Board of Directors is elected by, and primarily represents the interests of, the shareholders. The CEO is supposed to be the highest ranking employee who answers to the BOD.

This arrangement has been corrupted beyond recognition. Typically, when the shareholders elect members to the BOD there is only one choice for each position because they have already been selected. It is possible for shareholders to pass resolutions in defiance of the BOD's wishes on this and other issues but that is very rare - partly because the BOD is usually permitted to cast votes as they wish on behalf of all shareholders who do not vote their shares. The deck is stacked against the shareholders.

So who actually selects the members of the BOD who are supposed to supervise the CEO? Most of the time it is the CEO who interviews and selects candidates. They prefer to recruit individuals who are CEOs at other companies.

This promotes an incestuous relationship called board interlocks: I'm a CEO at Company A and you're a member of my BOD. You're the CEO of Company B and I'm on your BOD. I'll vote for your pay raise if you vote for mine, wink wink. Even without a direct interlock the BOD members are beholden to the CEO who selected them. And members of the board inordinately empathize with the CEO because they themselves are often CEOs. For example, CEOs love to see their peers at other companies get pay raises because they effectively use this to leverage additional compensation for themselves.

It's an enormous racket. This is why executive compensation has reached obscene levels. You can treat the symptoms but these people are very creative about finding other ways to get what they want. Limiting deferred compensation would force executives to pay income taxes. But complicit BOD members could just increase their poor disadvantaged CEO's pay to offset the new taxes.

I wish CEOs were prohibited from being a member of any Board of Directors, especially the one where they are employed. And this includes nonprofits. It would be even better to prohibit all BOD members from sitting on any other BOD. This would further discourage interlocks and help break up the 'club' that exercises control of corporations.

We also need reforms to protect shareholders' rights, such as outlawing the practice of BOD members voting on behalf of shareholders who do not participate in an election. The way it works today the BOD members really don't have to answer to the shareholders and this will continue without reform. Chief executives will continue to receive outrageously unjustified levels of compensation that needlessly dilutes shareholder value unless this disease is cured.

[JerseygirlCT]

16. Totally with you until the non-profit

Where do you think non-profits ought to get their BODs? Too many "just folks" and you have no money. Do they use their board memberships to schmooze? Sure, but without that, they'd only use their golf club memberships or other social organizations.

And since I've been in nonprofits for the last 20 years, I can tell you that the vast majority of CEOs I've worked with are sincerely interested in the work of the non-profit and work hard for them. They may accrue a few social points for their position, but they do far more for the non-profit, and therefore for the community, than the non-profit does for them. And if they don't, they'll be short in their position. Most non-profits cannot afford do-nothings on board.

[Lasher]

18. I stand by my position on nonprofit BOD independence

I'm sorry I stepped on your toes on account of your involvement in nonprofits but I must stand by my position. No hard feelings I hope.

Senior executives who work for large nonprofits typically receive compensation that I would consider lucrative. BOD members of nonprofits often lobby for sizable donations from corporations where they are CEOs, which can be a key advantage to having them on the board. They also influence decisions about who is hired at the nonprofits and at what levels they are compensated.

The potential for conflicts of interest therefore exist, particularly if a nonprofit's senior executive sits on the BOD where one of his or her directors is the CEO. Things can and do get more complicated than this, and you are quite correct to infer that they would use golf club memberships, etc, to "schmooze". Another loophole might be substituting a CEO with their spouse or other relative on the BOD. But the controls I propose would make it harder to exploit interlocks and promote BOD independence.

There are plenty of capable people who are not CEOs or board members elsewhere. But this is not about capabilities as much as it is about influence. And that's pretty much my point.

[JerseygirlCT]

21. Ah. Well, we can find room for agreement here then

The jumbo non-profits, where compensation is, I agree, totally out of whack with mission, are sort of a world to themselves. (We're talking the big diseases, the ARC, etc?)

I'm thinking of all the community-sized non-profits, where the local CEOs make a big difference, and the non-profit's ED or CEO makes a living salary but nothing in the stratosphere of the CEO. I have a hard time with non-profit CEOs making salaries comparable to their positions in the "real world". If you believe in your organization and its mission, that's a big part of why you do the work, not the cushy salary. If you're looking for purely big bucks, then move to the private sector.

And of course, no hard feelings. It's just one of those worlds and issues where there's a great deal of variety.

[Lasher]

22. Appreciate your input

And you're right, I'm thinking in simplistic terms.

I have been thinking about this general BOD independence issue for a long time. It was only a few years ago that I decided large nonprofits should be regulated in in a manner similar to what I propose for the for-profit corporations. This is the first time I've had the benefit of being challenged by someone who has direct experience in such things.

In the future I'll be careful to use the label, 'large nonprofits' when I opine on the subject, although I don't yet know just exactly how that should be defined.

Thanks for the education. :hi:

Lasher

Edit for typo.

[JerseygirlCT]

24. It's not that you're thinking in simplistic terms at all

You've unknotted the CEO/BOD web pretty nicely, I think.

And the organizations ARE somewhat comparable. What's *supposed* to keep things like exec. pay in line is an involved and committed BOD, focused on mission. Unfortunately, sometimes their committment is stronger toward the person than the organization. That's always bad in the long term for the organization. But it lets certain personalities do quite nicely for themselves.

I thank *you*. The more people who point out the absurdity that is the incestuous world of big biz the better!

[brg5001]

17. And shareholders are now represented by faceless money managers

Lasher, you got that right! And what little leverage average (and even wealthy) shareholders can wield is diluted by the faceless institutional money managers who are too busy padding their own paychecks with management fees to give a damn about the deleterious state of corporate governance. Bob Nardelli is only the most recent example of a system with a huge, stinking double standard: If you're part of the CLUB, it doesn't matter what you do. You are going to be able to pack the board and upper management with your hand-selected cronies and you can rob the place blind. Meanwhile, you can go around to conferences and make speeches exhorting the importance of EVERYONE else meeting benchmarks and being compensated based on the "MARKET", even as your company goes down the tubes. Corporations are creatures of LAW and were created by the State to allow enterprise to flourish for the benefit of all. They have become the private piggy banks of a relatively small coterie of haughty bastards. "Heads I win, tails you lose." That's all you need to know. What's sad is that large numbers of so-called Christian conservatives consistently have voted to pave the way for this thievery by voting for right-wingers whose tickets have been paid for by the modern Executive Class, in the name of God and the economic conservatism. Truth is, there is nothing economically-based about the current situation in corporate America -- it's more like the Divine Right of Kings, and IMO Bob Nardelli and his cadre of cronies should be tried for what the British call "Fraudulent Conveyance" -- a long-term scheme to commit grand larceny via conspiracy.

[JerseygirlCT]

13. Good idea

Where the idea ever came from that these top execs ought to command truly amazing salaries, and then be able to squirrel huge chunks away without tax penalties...

[Name removed]

15. Deleted sub-thread

Sub-thread removed by moderator. Click here to review the message board rules.

[ArmchairMeme]

19. Executive compensation is killing corporations

I think that our country needs to repeal the concept that a corporation has the rights of a person. Clearly the corporations do not have the tax program of a person.

When an executive takes exoribitent compensation out of the corporation that surely can't help production. The compensation of all employees is an expense. Clearly corporations use this tool when they say they have to lay of xxx number of employees to reduce their expenses. The problem is when they lay off people they don't put the money into production that put it into exec perks. Execs don't contribute at all to the production. They are just a pretty face and of course, a tool.

I read about all these over-the-top bonuses and I measure it against being laid off because the money an employee earns is an expense that needs to be eliminated so that the corp. can profit.

[ArmchairMeme]

20. Lottery

When an individual wins the lottery they are taxed. The individual does not have the power to stash the millions offshore. They must pay taxes in order to get the winnings.

[ItNerd4life]

23. It's a start. Why not limit them to 50 times lowest paid worker?

Why not just limit all executive pay to 50 times more than the lowest paid worker. This way, if they want a raise, they have to give raises to the employees. Just a thought.

[LiberalFighter]

25. 1 million is too high the limit should be at best $500,000

[williesgirl]

26. It's about time - we taxpayers are financing their gazillion $ benefits. recommended