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Entries tagged "Executive Excess"

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Why Supersized CEO Pay Is the Worst - in Three Charts

August 29, 2013 ·

This originally appeared in The American Prospect.

seadigs/FlickrAt the Institute for Policy Studies, we’ve tallied the top 25 highest-paid CEOs for each of the past 20 years.

That’s a total of 500 richly rewarded executives—each one of whom made more in a week than average workers could make in a year. We’re told CEOs deserve these massive rewards because they add exceptional “value” to their businesses. They’re getting “paid for performance.”

Really? Hmm. Let’s consult the numbers.

Let’s start with the firms that led our nation into financial crisis. Of the 500 places on our annual top-paid lists, 112 are filled by Wall Street CEOs who drove their companies to bankruptcy or bailout in 2008. Richard Fuld of Lehman Brothers made the top 25 highest-paid list for eight consecutive years until his firm’s bankruptcy precipitated the financial crisis.

And how about CEOs who end up getting fired? No one could possibly consider them “high performers.” Yet fired CEOs make up another 39 names on the highest-paid CEO lists of the past 20 years. Compaq Computer CEO Eckhard Pfeiffer, named one of Business Insider’s “15 Worst CEOs in History,” got the boot in 1999, but made off with a golden parachute valued at $410 million.

And how about CEOs who cook the books? Another 38 of our pay leaders have led companies that have had to pay massive fines or settlements for serious fraud. Two served prison time for their crimes (Dennis Kozlowski of Tyco and Joseph Nacchio of Qwest), a third died before sentencing (Kenneth Lay of Enron), and a fourth (Bruce Karatz of KB Home) is on probation.

Altogether, the bailed-out, the booted, and the busted made up nearly 40 percent of the companies shelling out top dollar for their CEOs on our list.

These numbers don’t tell the full story. Left out, for example, are all the CEOs who’ve boosted their compensation by manipulating marketplace monopolies, freezing their workers’ paychecks, or cutting corners on environmental protections.

Even by the narrowest of definitions, the percentage of highly paid CEOs who performed poorly is shockingly high.

The Taxpayer Trough Club

Financial bailouts are just one example of how a significant number of CEO pay leaders owe much of their good fortune to taxpayers. Government contracts are another. CEOs of firms on the federal government’s top 100 contractors list occupied 62 of the 500 slots on the annual highest-paid CEO lists of the last 20 years. In the same years that their CEOs pocketed some of corporate America’s fattest paychecks, these firms received $255 billion in taxpayer-funded federal contracts.

Even if a corporation is not receiving government funds directly, taxpayers are subsidizing all highly paid CEOs through a giant loophole in the federal tax code. Under current rules corporations can deduct unlimited amounts off their income taxes for the expense of executive stock options and other so-called “performance-based” pay. The more corporations pay their CEOs, the less they pay in taxes.

The Boy’s Club

It will come as no surprise that most of the CEOs in this uppermost echelon of Corporate America are men. Of the 500 places on the top 25 highest-paid CEO lists over the past 20 years, only five (1 percent) are held by women. One—Andrea Jung of Avon—made the list twice. The others who made it into America’s loftiest CEO circles: Carol Bartz of Yahoo, Irene Rosenfeld of Mondelez International (formerly part of Kraft), and Marion Sandler of Golden West Financial.

This doesn’t mean we can solve the CEO pay problem by simply getting more women into corner offices. American corporate culture offers incentives for CEOs—whether male or female—to behave in ways that undermine workers, taxpayers, and shareholders. Our tax and government contracting policies reinforce this perverse reward system.

Until all this changes, the gender of our top corporate leaders won’t make much of a difference.

Sen. Durbin Floor Speech on IPS CEO Pay Report [VIDEO]

September 9, 2011 ·

The 2011 Executive Excess report continues to make waves among members of the media and decision-makers in Congress. This time, Senator Durbin, a progressive democrat from Illinois, took to the Senate floor to highlight some of the findings of the report. He particularly zeroed in on General Electric, which has highlighted in the report as one of the top ten most creative tax-dodgers. Watch the video here:

Click here to access the report 2011 Executive Excess: The Massive CEO Rewards for Tax Dodging."

Will Obama's Push for Jobs Lead to a New Economy?

September 9, 2011 ·

It is wonderful to be back full-time at IPS – 15 months is a long time to be away. I'm deeply indebted to the Institutes' staff, board, and supporters like you for keeping IPS vibrant.

I want to thank Joy Zarembka in particular for guiding IPS during my sabbatical. Joy brought wisdom beyond her years to the helm, and we're stronger because of it. We're also greatly pleased that Joy will stay at the Institute, moving into the position of Associate Director. You'll see both of us writing for Unconventional Wisdom and sharing leadership as IPS confronts the greatest social and political challenges of the day.

Tonight, President Obama will address one of those challenges in a critical speech on his plan to create jobs. IPS has argued that any plan must build a new economy by shifting resources from speculative Wall Street firms to green Main Street firms. Central to this are revenue-raising measures aimed at reducing our country's immense inequality. Last week, we deepened our analysis with the release of our report, Executive Excess 2011: The Massive CEO Rewards for Tax Dodging. It was perhaps our best media day ever, garnering coverage in The New York Times, The Washington Post, The Nation, The Hill, Politico, CNN, the Chicago Tribune, and hundreds of other outlets.

The report found that corporate tax dodging has gotten so out of control that 25 major U.S. corporations last year paid their chief executive more than they paid Uncle Sam in federal income taxes. And these people – the nation's CEOs – are reaping awesomely lavish rewards for the tax dodging they have their corporations do. Obama would do well to urge Congress in his address to pass the Stop Tax Havens Abuse Act as one small step to curb corporate tax dodgers. Tune in to our blog and twitter stream tonight to get our breaking reactions to the speech.

As our country reflects upon the 9/11 terrorist attacks, many commentators are focusing on the role of the United States. But the past decade of fighting apparently endless wars confirms that Washington lacks the power and responsibility to serve as the global cop. As IPS expert John Feffer explains, "The problem isn't out there. It's right here, in the minds of those who believe that the United States is essential to managing these conflicts."

Finally, I invite you to join IPS as we remember two of our colleagues killed in the first act of foreign terrorism on U.S. soil – the assassination of Orlando Letelier and Ronni Karpen Moffitt at Sheridan Circle on September 18 and at the Letelier-Moffit Human Rights Awards on October 12.

Unconventional Wisdom is a biweekly newsletter published by the Institute for Policy Studies. To receive Unconventional Wisdom or other IPS newsletters in your inbox, sign up here.

Can Anyone Tackle Our Tax-Dodging CEOs?

September 6, 2011 ·

Sarah Anderson, a veteran analyst at the Institute for Policy Studies in Washington, D.C., has been the lead author of the Institute’s annual executive pay report ever since 1993.

On CEO pay, Anderson sighs, “I sometimes think I’ve seen everything.”

And then came the research for this year’s report — released last Wednesday — and the results floored even Anderson.

Last year, the Institute for Policy Studies researchers discovered, CEOs at 25 of America’s largest corporations — powerhouses that range from Boeing and Verizon to Prudential and G.E. — took home more in personal compensation than the companies they run paid Uncle Sam in federal corporate income tax.

In 2010, these 25 companies averaged a whopping $1.9 billion each in global profits. Yet they actually came out ahead last year at tax time. Uncle Sam owed them money, an average $304 million in tax refunds and credits.

The CEOs who call the shots at these 25 companies make up a quarter of 2010′s 100 highest-paid CEOs. Their average take-home last year: $16.7 million.

How could the companies these 25 CEOs rule be so profitable  — and so generous to their top execs — yet end up paying Uncle Sam so precious little?

Giant corporations like these, explains IPS study co-author Chuck Collins, are essentially “rewarding CEOs for aggressive tax avoidance.”

That reality has caught the eye of Rep. Elijah Cummings, the top Democrat on the House Oversight and Government Reform Committee. Last week, at the release of the new IPS study, Cummings called for hearings to examine “why CEO pay and corporate profits are skyrocketing while worker pay stagnates.”

The new IPS report, Executive Excess 2011: The Massive CEO Rewards for Tax Dodging, puts numbers on this soaring and stagnation. Last year, the study documents, CEOs at America’s S&P top 500 corporations saw their average pay jump 27.8 percent. Average worker pay rose just 3.3 percent.

The aggressive tax dodging that’s enriching corporations and CEOs, the IPS analysts add, doesn’t actually break any laws. Corporate America has seen to that — by just as aggressively gaming the political system to stud the tax code with loophole after loophole.

Of the 25 top firms that paid their CEOs more than Uncle Sam last year, Executive Excess points out, 18 sport tax haven subsidiaries.

In fact, 20 of the 25 major corporations that paid their CEO more than Uncle Sam last year, notes Executive Excess 2011, “also spent more on lobbying lawmakers than they paid in corporate taxes.” And 18 of the 25 “gave more to the political campaigns of their favorite candidates than they paid to the IRS in taxes.”

This corporate lobbying and campaign cash has, over the years, created a tax code that offers CEOs a wide array of tax-dodging options. Many involve tax havens. Of the 25 top firms that paid their CEOs more than Uncle Sam last year, Executive Excess points out, 18 sport tax haven subsidiaries.

The over 550 tax haven subsidiaries of these 18 firms make shifting profits offshore — and beyond the reach of federal tax collectors — almost effortless. One example of this effortlessness: the shell game known as “transfer pricing.”

To play this “transfer” game, a corporate chief typically hands a tax haven subsidiary control over the U.S.-based firm’s “intellectual property,” assets that might range from patents to logos. The shell company then charges the U.S.-based operation inflated royalties for the right to use this property.

The U.S.-based concern happily tallies these inflated royalty costs, adds them in with the company’s other regular expenses, and proceeds to tell the IRS that the company’s U.S. operations have lost money for the year. The resulting profits from all this scheming pile up, in turn, on the books of the tax haven subsidiary, where they face rock-bottom tax rates — or no taxes at all.

The tax code lets corporations ‘defer’ taxes, a power the code does not grant to individual taxpayers.

Last week’s IPS study drew extensive media coverage, from national dailies like the New York Times and Washington Post to top global news services. Reporters at many of these outlets asked the corporate giants the IPS study spotlights to defend themselves.

Some firms, like Bank of New York Mellon, offered no defense. Others, like Ameriprise and General Electric, argued they weren’t dodging taxes. They were merely “deferring” them.

The tax code does indeed let corporations “defer” taxes, a power the code does not grant to individual taxpayers. These deferrals, notes Executive Excess 2011 co-author Scott Klinger, amount to interest-free loans to corporations.

Even better — for corporations — the deferred taxes may go unpaid for decades. Taxes on earnings held offshore, for instance, do not come due until those earnings slide back into the United States. Adds Klinger: “If these funds are never brought home, the taxes are never paid.”

Verizon and eBay led the corporate pushback last week against the new IPS study. eBay charged that IPS had “misrepresented” the company’s tax situation. A Bloomberg reporter, in response, asked eBay and Verizon to disclose their exact 2010 federal tax return information. Both declined to make that disclosure.

Other reporters covering the corporate pushback told IPS that the corporate media relations officers that had contacted them couldn’t themselves explain what the numbers in the tax footnotes of their own corporate reports meant.

Corporations, IPS noted Friday in a reaction to the pushback, seem to complain “almost every time a story is written about a particular corporation’s tax position.” Yet these same corporations resist reforms that would require all companies to disclose clearer data on “what they actually pay in taxes.”

This year’s Institute for Policy Studies Executive Excess report offers outraged readers a guide to all the significant reform proposals — inside and outside Congress — on the tax and pay games CEOs play.

IPS has also created an action page online to help Americans push corporate tax and pay reform forward. And that reform, after this year’s Executive Excess, has seldom seemed more desperately needed.

“We have,” as the new 2011 Executive Excess sums up, “a corporate tax system today that works for top executives — and no one else.”

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up at Inequality.Org to receive Too Much in your email inbox.

A Response to Disputes by Corporations over our Methodology

September 2, 2011 ·

Since the release of Executive Excess 2011, several of the corporations included in our study have raised questions about our methodology. We first address the three concerns we have heard and conclude with a comment on the value that improved tax transparency would have on corporations and stakeholders alike.

Responses to Specific Concerns
We have heard three general complaints from corporations

“We have taken a provision for income taxes, far greater than the number you cite.”
Ameriprise and General Electric have both expressed this position in response to our report.

The corporate provision for income taxes is comprised of two numbers, the current taxes paid in a given year and the deferred taxes which may or may not be paid in the future. The provision for income taxes does create a liability for the corporation, an acknowledgment that there may be taxes to pay in future years, and does record a charge to earnings. But the money for deferred taxes remains in the company’s hands where it can be put in the bank and earn interest, or buy additional equipment to expand. We have been clear in our report that we are focused on the current taxes as the best approximation of the net result of what corporations actually paid in a given year.

Why do we say deferred taxes may or may not be paid in the future? Because some forms of deferred taxes can be put off indefinitely. For instance, taxes on funds held offshore do not become due until those funds are brought home to the U.S. If these funds are never brought home, the taxes are never paid.

To create an analogy using two friends, one friend may give another friend a note saying they will give him or her $100 in 20 years. With this promise of deferred payment they’ve created a liability for themselves, but no reasonable person would seek to claim that the first friend paid the second the $100 in the current year. We have sought to measure that which actually changes hands, not that which might change hands years down the road.

One more word here: even the current tax reported is an approximation. For companies with a December fiscal year, tax filings are generally made in September, while 10-K reports with the SEC are filed in February or March. Thus, what makes its way into the 10-K report is the best guess at the time of the year’s tax position. But in most if not all cases, adjustments continue to be made up until the tax form is filed with the IRS.

“You’ve excluded all the taxes that we pay to states and foreign governments”
Several companies have responded by pointing to the large amounts they pay in state and local taxes, taxes to foreign governments and even payroll taxes. Verizon and eBay have both raised this objection.

Again we believe we have been clear that our focus is on corporate income taxes paid to the U.S. federal government.  We did not investigate or make any claims about the taxes corporations paid to state, local, or foreign governments. The background for our report is a time when there is heightened focus on the federal government’s fiscal situation. Massive cuts to government programs are underway, including programs and government investments that benefit businesses. Our intent was to call into question whether corporations are paying their fair share toward the cost of government.

“Our tax refunds were the result of accounting adjustments and settlements.”
Accounting adjustments and tax settlements are common elements of corporate tax reporting and they do affect corporations year-to-year. eBay has issued a public statement saying that their refund in 2010 stemmed from a settlement pertaining to previous years’ tax returns.

In our report, we took a snapshot of a single year and did not attempt to adjust the numbers reported in the current tax provision for any of the companies in the study. We have noted in the report both that all of the ways corporations reduce their taxes are legal and also noted that in our opinion some are more legitimate, while others are not. We have not attempted to explain the reasons behind the particular current tax number for any of the companies in the report.

Clearer corporate tax reporting is in the interest of all
Objections by corporations to the way their taxes are calculated are not new. It happens almost every time a story is written about a particular corporation’s tax position. Journalists are caught in the middle of a “he said – she said” dispute and the public is left confused about who to believe.

We are reminded in our 18 years of work on executive pay that the disputes we now see about taxes used to happen around how CEO pay was calculated. The SEC stepped in and required that obtuse proxy statements, written in legalese, be re-written in plain English. Many corporations complained it couldn’t be done, but it has been and with great success. There remain today different ways of calculating CEO pay, but the differences are minor and the disputes over accurate numbers have all but disappeared.

We believe we are at the same point today with corporate tax disclosure that we were with executive pay a decade ago. There is obviously an enormous public appetite for more and clearer information on what corporations actually pay in taxes each year, and not just in this country, but in all of the taxing jurisdictions of the world. For instance, it would be informative to know what share of profits and taxes are being paid in places like the Cayman Islands or Luxembourg.

While the public is demanding more and clearer disclosures, corporate tax reporting has, in fact, grown more opaque and indecipherable, even to those with advanced degrees in corporate tax law. Some reporters who called us for clarifications reported to us that the corporate media relations officers that contacted them could not themselves explain what the numbers in the tax footnote meant. It is time for a change.

We are fortunate to have the work of the Extractive Industry Transparency Initiative (EITI), a cooperative effort between the activist community and energy and mining companies, that has established standards for report on taxes and other payments made on a country by country basis throughout the world. Country by country reporting has made a huge difference in understanding corporate activities and in cracking down on corruption in many nations.

One of the changes we advocate in our report is adopting country-by-country reporting standards for all corporations. Making these audited numbers available would reduce, if not eliminate, the disputes that we’ve seen in recent days over how much corporations really pay. While the vast majority of corporations oppose country-by-country reporting, we welcome any of the companies featured in our report joining with us to call upon Congress to enact country-by-country reporting, one of the provisions of the Stop Tax Havens Abuse Act discussed in our report.

Working together we might be able to bring the same clarity and transparency to corporate tax reporting that we have achieved in executive pay disclosures. Such transparency would benefit corporations and stakeholders alike.

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