Walmart’s Executive Bonuses Cost Taxpayers Millions

Walmart's Executive Bonuses Cost Taxpayers Millions Report CoverWalmart has been widely criticized for shifting the costs of its low-wage model onto taxpayers. This report, co-published by IPS and Americans for Tax Fairness, reveals that taxpayers also subsidize much of the cost of Walmart’s executive pay. Specifically, the report calculates the cost of a tax loophole that allows Walmart and other corporations to deduct unlimited amounts from their income taxes for the cost of executive compensation if it is in the form of stock options and other so-called “performance pay.”

Key report findings:

  • Walmart reduced its federal tax bills by an estimated $104 million over the past six years by exploiting a tax loophole that allowed eight top executives to pocket more than $298 million in “performance pay” that was fully tax deductible. That sum would have been enough to cover the cost of free school lunches for 33,000 children for those six years.
  • Michael T. Duke, Walmart’s recently retired President & CEO and currently Chairman of the Executive Committee of the Board of Directors, pocketed nearly $116 million in exercised stock options and other “performance pay” during the period 2009-2014. That translates into a taxpayer subsidy for Walmart of more than $40 million—enough to cover the average cost of food stamps for 4,200 people for those six years.
  • Taxpayers would save $50 billion over 10 years, according to the Joint Committee on Taxation, if Congress closed this perverse “performance pay” loophole by capping the tax deduction at $1 million for each employee’s total compensation, with no exceptions for performance pay.

Download the full report [PDF].

Download a table with detailed year-by-year data on pay subsidies among Walmart’s top executives [PDF].

  • ORAXX

    This is why the right wing wants to keep the public’s attention focused on the single mother on food stamps, and straw men like Reagan’s non-existent ‘welfare queen’.

  • Mike

    I’m not sure if you guys are being misleading on purpose or out of ignorance. Any performance pay is fully taxable to the individual. You are making it seem like they are avoiding taxation. These execs pay close to 50% of that in taxes.

    I’m not saying that executive compensation is not in need of reform but this kind of journalism is going to hurt the cause more than help it.

    They tried capping exec comp and companies found a way around it. Close that loophole and another opens. You can’t make policy in a vacuum!

    • Darknut

      “Close that loophole and another one opens…” You forgot to say “…hail Hydra” at the end of that. So we should give up and stop trying? That free money they’re pilfering from their shareholders and employees has nothing to do with “performance” and everything to do with “What they can get away with.” When another loophole opens, close that one too. The “50% tax” is bs. the executives pay less % taxes than their lowest underlings.

    • Mindysqueo

      Yes, they pay taxes on it, but the top rate is not 50%. Off the top, believe it’s 38%, which still exceeds the top corporate rate of 35%

      • Michael Lawrence Dunn

        Wrong. You are thinking of max individual max income tax rates. Max corporation income tax rate is, in fact, 50%.

    • Jason

      Yes, performance pay is taxable to the individual. But the loophole is around the $1M cap on deductions from corporate taxable income.

      Section 162(m) of the tax code caps the amount of executive compensation that corporations can deduct from their taxable income at $1M. Corporations pay taxes on their profits (revenue minus operating costs). Normally the money spent on salaries reduces taxable corporate income, but if corporations pay their execs more than $1M, the portion over $1M can’t be deducted from their corporate taxable income. Which means the exec would pay income taxes on the money, and the corporation would also pay taxes on that money. (Basically double taxation kicks in once execs are paid more than a million dollars a year, but that’s not so bad, b/c a million dollars a year is a pretty decent salary. The idea is that once corporations are paying people more than a million a year, they corporation can’t call that a reasonable business expense that reduces their taxable income.)

      The exception is for so-called “performance pay.” If the portion of the compensation that exceeds $1M is classified as performance pay, the corporation can still reduce that money from their taxable corporate income, and only the executive is taxed. So of course Walmart execs are paid just over $1M in salary, and the rest of their compensation is shifted to “performance pay.”

      For example, former Walmart CEO Michael Duke made $24,572,506 in 2014, $22,715,823 of which was performance pay. That means his regular salary was a measly $1,856,683 (poor guy) and the extra $22,715,823 was because he did “such a good job.”

      Without the performance pay loophole, Walmart would only be able to exclude $1M from their taxable income, which would increase their taxable corporate income by $23,572,506. But with the loophole, they are able to carve $22,715,823 out of their taxable income, drastically reducing the amount corporate taxes they have to pay.

      So Walmart pays such low wages that thousands of it’s employees still have to rely on tax-payer funded public assistance, while at the same time, it shifts the majority of executive compensation into “performance pay” to reduce it’s own corporate tax bill.

  • rons426

    Employee stock options (ESO) should be outlawed / repealed. When this provision was passed in 1950 as part of the Revenue Act of 1950 by DEMOCRATS, it was supposed to give the “rank and file” or blue collar worker participation in the profits in corporations. 100% of workers were supposed to get these ESO’s. Once corporate lawyers got finished with it, less than 2% of employees get them!!!! Senior management only, this is the main cause of the income inequality / income gap. There is no fixing it, just repeal it. Let senior management get paid with stock dividends from stock they buy, just like stockholders. One more thing, because dividends are taxed twice / double taxed, thanks Democrats again, 60% to 80% of corporations do not pay them. Guess where the profits go???? ESO!!!!! Outlaw taxes on dividends and force corporations to pay at least 85% of profits in dividends. And who are the largest owner of stocks in America??? Pension funds!!