Posted by: Nanette Byrnes on December 16, 2009
France has followed the UK example and slapped a 50% tax on banker’s bonuses. Could the US be next?
Not likely, experts say. Washington may be making great sport these days of deriding Wall Street’s Fat Cats. But there seems to be little interest in the Capitol in making such a dramatic move as this tax.
Instead, the Securities & Exchange Commission finalized rules today that will require corporate board to dig deeper into corporate pay plans.
Irv Becker, National Practice Leader of the Executive Compensation Practice at consultancy Hay Group, doesn’t think the new policy would have kept us out of the financial crisis by itself, but he says it is nonetheless a positive step.
Today boards focus on the compensation of the top five executives at the company. But under the new provisions, would have to take a deep look at any plan that could have a material impact on a company. Many parts of any financial firm would qualify for examination, Becker says, but other industries would be affected too. A pharmaceutical company’s sales rep pay, for example, could also come under review. “This really expands the scope of the board’s compensation committee,” he says.
Though less dramatic, the SEC’s move could prove more effective in the long run. Without a broader group of countries imposing the bonus tax, Becker says, banks will likely just shift out of those countries that keep a tax in place and move instead to markets like Switzerland and many Asian countries where there is no such issue.
In the US, “the inclination would be to see if the companies police themselves first,” says Derrick Neuhauser, co-leader of BDO Seidman’s Compensation Risk Assessment Task Force, “and if they don’t maybe use a tax, but only as a last resort.”
However unlikely today, it is not unprecedented for the IRS to impose taxes to limit pay abuses. IRS-imposed excise taxes have over the last 15 years help curb outsized golden parachutes for top executives, excessive compensation for non-profit leaders, and tax-free retirement plans high level executives were dipping into long before retirement.
How can you manage smarter? BusinessWeek writers Nanette Byrnes, Patricia O’Connell, Emily Thornton, Matthew Boyle, Michelle Conlin and Diane Brady synthesize insights from the brightest business thinkers, critique the latest management trends, and comment on leaders in the news.