+1 212 318 2000
Europe, Middle East, & Africa
+44 20 7330 7500
+65 6212 1000
Posted by: Theo Francis on August 24
After lobbyists, corporate executives may be among this presidential campaign’s favorite whipping-boys, and pay issues have been squarely in both candidates’ sights, as this June item on BusinessWeek.com attests. Both sides have taken aim at corporate greed, and fat executive paydays as well (see quotes after the jump).
Now more fodder: Taxpayers subsidize executive compensation to the tune of more than $20 billion a year, argues a report due out today from the Institute for Policy Studies and United for a Fair Economy.
Here’s how they break that down:
Capital-gains treatment of carried interest: $2.7 billion a year. Simplified, private-equity fund managers are paid in part with a cut of the profits they generate — often 20%; they’re taxed on that income at capital-gains rates, not higher income-tax rates. A bid to change that failed in December.
Deferred compensation: $80.6 million a year. Rank-and-file workers only qualify for tax deferral on limited 401(k) and IRA contributions. By contrast, executive deferred-comp plans typically let executive sock away nearly unlimited amounts toward retirement (or just a rainy day), and some pay fixed, above-market interest as well. While execs’ tax deferral is supposed to come at the risk of loss — if, say, their employer goes belly up — companies have found creative ways around that.
Offshoring deferred-compensation: $2.1 billion a year. Investing their pay in hedge funds based in the Caribbean or elsewhere shelters it further.
Weak limits on tax deductions for executive pay: $5.25 billion a year. Companies can deduct compensation as a business expense — and that includes big executive paydays. A $1 million pay cap implemented during the Clinton Administration is easy to work around using “performance-based” pay that critics charge often has little to do with performance.
Mismatch between tax and accounting values for stock options: $10 billion a year. Companies expense stock options on their books as of the date they grant them to executives. But the taxman collects — and companies take a tax deduction — based on the day executives cash them in, when the options are often more valuable.
Neither candidate has said much on these topics. Obama supports taxing profit-based fees for private-equity managers as income instead of capital gains; McCain opposes it. Both men have said they would back a "say on pay" measure giving shareholders the right to advisory votes on executive compensation, and McCain may even support giving them veto power on pay packages. Otherwise, they have offered few specifics.
Not that it's stopped them from fulminating against executive greed more generally:
"Something is seriously wrong when the American people are left to bear the consequences of reckless corporate conduct, while the offenders themselves are packed off with another $40m or $50m for the road." -- John McCain in June, in this Financial Times article.
“We’ve seen what happens when CEOs are paid for doing a job no matter how bad a job they’re doing. We can’t afford to postpone reform any longer." -- Barrack Obama, on his campaign Web site.
Washington Bureau Chief Jane Sasseen and other BusinessWeek writers cover the run-up to the Nov. 4 presidential election, paying close attention to how the candidates will handle issues such as housing, the economy, unemployment, and immigration.