Some US firms paid more to CEOs than taxes, study finds

August 31, 2011

The study also found many of the companies spent more on lobbying than they did on taxes. Reuters pic

WASHINGTON, Aug 31 Twenty-five of the 100 highest paid US CEOs earned more last year than their companies paid in federal income tax, a pay study said today.

It 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 from the Institute for Policy Studies (IPS), a left-leaning Washington think tank, quickly hit a nerve.

After reading it, Democratic Representative Elijah Cummings, ranking member of the Committee on Oversight and Government Reform, called for hearings on executive compensation.

In a letter to that committees chairman, Republican Darrell Issa, 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 chose to compare CEO pay to current US taxes paid, excluding foreign and state and local taxes that may have been paid, as well as deferred taxes which can often be far larger than current taxes paid.

The groups rationale was that deferred taxes may or may not be paid, and that current US taxes paid are the closest approximation in public documents to what companies may have actually written a check for last year.

US$16.7 MILLION AVERAGE

Compensation for the 25 CEOs with pay surpassing corporate taxes averaged US$16.7 million (RM50.1 million), according to the study, compared to a US$10.8 million average for S&P 500 CEOs. Among the compan! ies topp ing the IPS list:

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

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

* General Electric where CEO Jeff Immelt earned US$15.2 million in 2010, while the company got a US$3.3 billion federal refund and invested US$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 utilising offshore subsidiaries in tax havens such as Bermuda, Singapore and Luxembourg. The remaining companies benefited from accelerated depreciation.

Shareholders have responded favourably when companies in which they invest keep a tax bill low through legal methods, thereby benefiting earnings. But Chuck Collins, an IPS senior scholar and co-author of the report, said that is a mistake.

I think its an exposure of weakness in a company if their profitability is dependent on their accounting department and not on making better widgets, he said.

In prior reports, Collins said, 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: Tyco, Enron and WorldCom. Reuters