Compensation Conflagration: When Corporations Pay Their CEO More Than They Pay in Taxes

We're guessing there are about 25 PR people and their attendants who arent going to make it home for dinner tonight. Or tomorrow night. And Labor Day weekend isnt looking too good either.

That is what happens when your CEO gets fingered as one of 25 who make more in annual pay than their company pays in taxes and every media outlet in the world picks up the story. It certainly speaks well of corporate accounting and tax liability management. But it does not do wonders for your reputation as a good corporate citizen. And we can only image what the IRS is now planning. The good news? Well, outside legal counsel is going to have a better third quarter than they expected. In this economy, we'll take that corporate investment however we can get it. JL

Peter Whoriskey reports in the Washington Post:

It has become a bipartisan article of faith in some quarters that the income tax on U.S. corporations must be lowered.

But for many large U.S. companies, the burden of U.S. taxation pales in comparison with what they pay their chief executives, according to a study released Wednesday by the Institute of Policy Studies. Of last year’s 100 highest-paid corporate executives in the United States, 25 earned more in pay than their company recorded as a tax expense in 2010.
Those 25 firms reported average global profits of $1.9 billion. Among the 25 were Verizon, Bank of New York Mellon, General Electric, Boeing and eBay.

“These individual CEOs are being rewarded for presiding over companies that dodge taxes,” said Chuck Collins, one of the study’s co-authors and a senior scholar at the Institute of Policy Studies. Eighteen of the 25 firms last year operated subsidiaries in countries that the U.S. Government Accountability Office and other groups have identified as tax havens, one of the report’s authors said.

For example, Bank of New York Mellon paid its chief executive Robert Kelly $19.4 million last year, while the company got $670 million in what amounted to a tax refund, according to the report. The company has 10 subsidiaries in foreign countries, the report said.

Kelly has complained about the high U.S. corporate tax rate in the company’s annual meetings.

A spokesman for the bank offered no comment.

Some companies argued that the institute’s approach — which focused on what the firms recorded as a tax expense within the 2010 calendar year — presented a skewed picture.

Verizon, for instance, saw the equivalent of a $705 million refund in 2010 because it deferred paying taxes on the bulk of its income to future years. The company’s total tax bill from 2010 was about $2.5 billion. The delay in tax payments allowed the firm to make investments in the nation’s technology infrastructure, a company official said.

“Verizon fully complies with all tax laws and pays its fair share of taxes,” its spokesman, Robert A Varettoni, said.

But Scott Klinger, a co-author of the report, said the ability of corporations to push off tax bills is unfair. Ordinary Americans “don’t get to just defer our taxes until next year or 2030 or whenever they come due,” he said.

Some companies said their taxes were lowered because they invested in research and development or domestic manufacturing, not because they took advantage of overseas tax havens. Other firms, such as Prudential, said it listed a tax benefit of $722 million in its 2010 financial statements because it set aside too much money for taxes in 2009.

Still, institute officials said that a wide array of exemptions allow companies to keep their taxes lower despite the relatively high U.S. corporate income tax rate.

Among its other findings, the institute found that the gap between chief executive compensation and average U.S. worker pay rose from a ratio of 263-to-1 in 2009 to 325-to-1 last year.