The Corporate World - Written by Beasley Allen on Thursday, October 6, 2011 11:09 - 0 Comments

Highest Paid CEO’s Often Earn More Than Company Pays In Income Taxes

Twenty-five of the 100 highest paid U.S. CEOs earned more last year than their companies paid in federal income tax, according to a study by the Institute for Policy Studies (IPS), a Washington think tank. The study also found many of the companies spent more on lobbying than they did on taxes. At a time when lawmakers are facing tough choices in a quest to slash the national debt, the report has some very interesting observations.

Rep. Elijah Cummings, ranking member of the Committee on Oversight and Government Reform, has called for hearings on executive compensation. In a letter to the committee’s chairman, Rep. Darrell Issa, Rep. Cummings asked “to examine the extent to which the problems in CEO compensation that led to the economic crisis continue to exist today.” He also asked “why CEO pay and corporate profits are skyrocketing while worker pay stagnates and unemployment remains unacceptably high,” and “the extent to which our tax code may be encouraging these growing disparities.” In putting together its study, IPS compared CEO pay to current U.S. taxes paid. The study made these findings:

• Compensation for the 25 CEOs with pay surpassing corporate taxes averaged $16.7 million, according to the study, compared to a $10.8 million average for S&P 500 CEOs. Among the companies topping the IPS list:

• eBay, whose CEO John Donahoe made $12.4 million, but which reported a $131 million refund on its 2010 current U.S. taxes.

• Boeing, which paid CEO Jim McNerney $13.8 million, sent in $13 million in federal income taxes, and spent $20.8 million on lobbying and campaign spending.

• General Electric, where CEO Jeff Immelt earned $15.2 million in 2010, while the company got a $3.3 billion federal refund and invested $41.8 million in its own lobbying and political campaigns.

Though the companies come from different industries, their tax breaks fall into two primary areas. Two-thirds of the firms studied kept their taxes low by utilizing offshore subsidiaries in tax havens such as Bermuda, Singapore and Luxembourg. The remaining companies benefited from accelerated depreciation. Shareholders have responded favorably when companies in which they invest keep a tax bill low through legal methods, thereby benefiting earnings.

According to Chuck Collins, an IPS senior scholar and co-author of the report, that is a mistake. He said that “it’s an exposure of weakness in a company if their profitability is dependent on their accounting department and not on making better widgets.” In prior reports, out-sized CEO pay was often a red flag of bigger problems to come. The IPS has been putting a pay report together for 18 years. Among those whose leaders have made the high pay list in years past, only to have their businesses falter, are Enron and WorldCom.

Source: Huffington Post



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