WSJ: Latest Twist in Corporate Pay: Tax-Free Income for Executives

[question everything]

Latest Twist in Corporate Pay: Tax-Free Income for Executives

Companies Reimburse Bosses For Levies on Perks, Stock; Scant Details in Filings
A Recruiting Tool, Say Some
By MARK MAREMONT
Staff Reporter of THE WALL STREET JOURNAL
December 22, 2005; Page A1

Like most Americans, rank-and-file employees of Home Depot Inc. must reach into their own pockets to pay taxes.

But not Robert Nardelli, the home-improvement retailer's chief executive. Under his employment contract, Home Depot picks up a big chunk of his federal and state income taxes. Specifically, the company is obliged to reimburse its CEO for taxes due on a slew of perks, including a high-end luxury car, his family's travel on Home Depot jets and forgiveness of a $10 million loan. Last year, these payments amounted to at least $3.3 million, topping Mr. Nardelli's $2 million base salary.

Amid soaring CEO compensation, a number of companies are paying extra sums to cover executives' personal tax bills. Many companies are paying taxes due on core elements of executive pay, such as stock grants, signing bonuses and severance packages. Others are reimbursing taxes on corporate perquisites, which are treated as income by the Internal Revenue Service. They run the gamut from personal travel aboard corporate jets to country-club memberships and shopping excursions.

"This smacks of Leona Helmsley-like treatment, that only little people pay taxes," says Patrick McGurn, an executive vice president of Institutional Shareholder Services Inc., an influential adviser to big investors that often critiques companies' corporate-governance practices. For these top executives, he says, companies "are removing taxes from the list of inevitable life experiences, leaving only death." Details of the little-known payments, called "tax gross-ups," are often buried in impenetrable footnotes or obscure filings. In its 2005 proxy statement, Home Depot didn't disclose many of the perks it must give Mr. Nardelli, or that the company is required to reimburse him for taxes related to those perks. The company provided specifics of these benefits and the gross-ups in his employment agreement, which was attached to a 2001 regulatory filing.

(snip)

According to a study done by compensation-research firm Equilar Inc., 52% of companies disclosed they paid gross-ups to one or more top executives last year, up from 38% in 2000. The study, which was done this month for The Wall Street Journal, examined the U.S.'s 100 largest companies by revenue and counted those for which public filings could be found in both periods... The Securities and Exchange Commission is conducting a broad crackdown on hidden compensation of all types, although it hasn't yet focused on gross-ups. The agency worries that investors may not realize just how much senior managers are paid beyond their base salaries. Companies say they have to offer generous pay packages, including gross-ups, to attract top executive talent. For most corporate executives, these tax benefits are often a relatively small portion of total pay.

(snip)

Write to Mark Maremont at [email protected]

URL for this article:
http://online.wsj.com/article/SB113521937434129170.html (subsciption)

[NanceGreggs]

1. 'Reimbursement' is income ...

... liable to full taxation.

Too bad the IRS is busy investigating the legitimacy of someone's $12 taxi receipt -- they never seem to get around to auditing these bastards.

[unblock]

3. i'll bet another grossed-up perk is a company-provided tax attorney

to help with any audit.

which in turn makes auditing the rich less cost-effective for the irs, so the go after the little guy who doesn't know how or doesn't have the means to fight back.

[ticapnews]

2. I get taxed on a free movie ticket and a dinner at Olive Garden

It actually bumped me into the next bracket. A $25 bonus cost me $8. These assholes get tax-free compensation in the millions.

Yeah, that's what America is all about.

[RaleighNCDUer]

4. And let me guess --

because paying the execs tax bills is a business expense, the corporation gets to write off that payment itself, thus reducing its own tax liability as well.

It's win/win/lose -- the exec wins, the corporation wins, the American taxpayer loses, as an even greater share of the tax burden falls upon the poor and middle classes.

[badgolfer]

5. CEOs

As if these people don't make enough money to pay their own taxes!! Why don't they get all of their expenses, food, car, electric, gas, etc, etc paid for? Nardelli get around $40 million total compensation and can't pay his bills? Unbelievable!!! Maybe he qualifies for the home heating subsidy.