The Institute for Policy Studies (IPS) recently released their 19th Annual Executive Pay Survey entitled "The CEO Hands in Uncle Sam's Pocket", a look at how American taxpayers are subsidizing executive pay. Here are a few of the highlights.
1.) Of last year's 100 highest paid American corporate CEOs, 26 took home more pay than their companies paid in federal income taxes, up from 25 the previous year, receiving an average of $20.4 million in total compensation. This was up 23 percent over the previous year.
2.) On average, these 26 corporations were very profitable, earning more than $1 billion in average pre-tax income. On those hefty profits, the corporations received average net tax benefits from the Federal government of $163 million.
3.) These tax benefits were largely received because each of the 26 corporations has an average of just under 21 tax-haven based subsidiaries.
The Bush-era tax breaks have greatly benefitted America's corner office dwellers. On top of what should be considered an ample base salary, most of these gentlemen receive compensation boosts through the issuance of stock options, performance shares and other very creative stock-based pay that is preferentially taxed compared to "ordinary" income. This could well be termed "executive privilege" since most of us who sweat while we work do not receive the vast majority of our compensation in company stock.
Here is the entire list of companies that paid their CEOs more than they remitted to Washington:
Notice that two of the corporations have more than 100 tax haven subsidiaries. In total, the 26 CEOs made $531,594,681 in compensation while their federal corporate tax remittances totalled negative $4.25 billion on profits of $99.631 billion. Must be nice if you can get it.
Let's take a detailed look at two CEO's who received compensation that is in excess of what their firms remitted in federal income taxes last year.
1.) Citigroup – refunded $144 million in taxes in 2011
CEO Vikram Pandit – received $14.9 million in compensation for 2011
Citigroup exists only because of the largesse of American taxpayers and TARP; estimates show that Citi gleaned nearly half a trillion dollars in total assistance, the most of all American banks. Mr. Pandit received $38.2 million in compensation in 2008 and agreed to take only $1 in salary until Citi became profitable. Citi offered Mr. Pandit $14.9 million in 2011 which was voted down by just over half of all shareholders; unfortunately, as of July, Citi's board had not revealed whether or not they would be bound by the non-binding vote.
2.) American International Group (AIG) – refunded $208 million in taxes in 2011
CEO – Robert Benmosche – received $13.9 million in compensation for 2011
AIG was the insurer behind the near implosion of the world's economy back in 2008; that's why American taxpayers still own 60 percent of the company. At that time, the company received a bailout of $182 billion and a decision from the U.S. Treasury that allowed it to retain losses to offset against future profits. This has allowed AIG to report more than $19 billion in tax-free profits in 2011. CEO Benmosche has seen his compensation rise like a phoenix from the ashes; from $2.7 million in 2009 to $13.9 million in 2011, a rise of 415 percent.
As I wrote earlier, stock options (aka performance-based pay) are largely responsible for overly inflated executive compensation (although, I'd like an opportunity to try living on their base salaries of a million dollars plus per year for a few years!). A loophole in stock option accounting allows corporations to reduce their tax bills; IPS has estimated that the annual cost of this loophole is $2.5 billion in lost federal tax revenue with the biggest beneficiary in 2010 being our old friends at Apple who, in 2010, deducted $743 million and received a $260 million tax subsidy thanks to Main Street taxpayers. Incidentally, new CEO Timothy Cook set a new pay record of $374 million in 2011. Here are some of the other big beneficiaries of this particular loophole:
While it's all wonderful that the Presidential candidates are talking about fiscal responsibility and debt and deficit reduction, it is more than a bit off-putting when one sees that it is quite obvious where tax reform needs to take place. Unfortunately, those that we elect seem myopic when it comes to tax reform that may impact their donors and/or future/past employers.
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