Tags: ceo | taxes

Think Tank: Firms Pay More to CEOs Than in Taxes

Wednesday, 31 Aug 2011 06:00 PM

Twenty-five of the 100 highest-paid U.S. CEOs earned more last year than their companies paid in federal income tax, a pay study by a Washington think tank said Wednesday.

At a time when lawmakers are facing tough choices in a quest to slash the national debt, the Institute for Policy Studies, a left-leaning group, said it also found many of the companies spent more on lobbying than they did on taxes.

Compensation for the 25 CEOs with pay surpassing corporate taxes averaged $16.7 million, according to the study, compared with a $10.8 million average for S&P 500 CEOs.

The study found the gap between CEO and worker pay widened last year to 325 times the average worker's pay in 2010 from 263 times in 2009.

Several companies mentioned in the report took issue with its methodology and said they paid all taxes owed. A spokesman for General Electric called the study "inaccurate."

A separate study released by pay consultants Equilar found CEOs getting a larger slice of their companies' total options and restricted stock grants as well, including 7.4 percent of options in 2010, up from 6.2 percent in 2006.

The senior Democrat on the House of Representatives Oversight Committee, Elijah Cummings, called for hearings on executive compensation "to examine the extent to which the problems in CEO compensation that led to the economic crisis continue to exist today."

The institute compared CEO pay to current U.S. taxes paid, excluding foreign and state and local taxes that may have been paid, as well as deferred taxes that can often be far larger than current taxes paid.

The group's rationale was that U.S. taxes paid are the closest approximation in public documents to what companies may have actually written a check for last year to the Internal Revenue Service.

It said deferred taxes may or may not be paid.

Among the companies topping the IPS list:

* eBay whose chief executive, John Donahoe, made $12.4 million, but which reported a $131 million refund on its 2010 current U.S. taxes.

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

* General Electric, where CEO Jeff Immelt earned $15.2 million in 2010, while the company got a $3.3 billion federal refund and invested $41.8 million in its own lobbying and political campaigns.

 

'SIMPLY WRONG'

GE spokesman Andrew Williams said the study did not include significant income taxes paid in 2010 for previous years, or state taxes paid. "GE pays what it owes," he wrote in an e-mail response to questions.

In an e-mail response, an eBay spokesperson also disputed IPS' methodology, calling it a "misrepresentation" and saying the company "paid $646 million in taxes in 2010 globally, the majority in the U.S."

Boeing spokesman Chaz Bickers said the study was "simply wrong."

Instead of Boeing's reported "U.S. federal current tax expense" of $13 million that the IPS used, he said a better approximation of the company's taxes paid would be the $360 million it reported as its net income tax payments, most of which, he said, were federal.

"On federal cash tax payments last year we paid in the hundreds of millions," Bickers said. The company also received a $371 million credit from the government last year for overpayment of taxes in the past, and had added 5,000 U.S. jobs this year, in part because of federal tax breaks, he said.

The accounting used in SEC filings differs from the accounting used to tally what is owed on a corporate tax return.

Neither the IPS number nor the figure cited by Boeing exactly equals the check written to the IRS, said Scott Dyreng, an assistant professor at Duke's Fuqua School of Business, who studies corporate taxes. Although companies could disclose that figure, all tax returns are private.

The companies come from different industries, but their tax breaks fell into two primary areas, said Chuck Collins, an IPS senior scholar and co-author of the report.

Two-thirds of the firms studied kept their taxes low by using offshore subsidiaries in tax havens such as Bermuda, Singapore and Luxembourg. The remaining companies benefited from accelerated depreciation.

Shareholders have responded favorably when companies in which they invest keep a tax bill low through legal methods, thereby benefiting earnings.

But Collins said, "I think it's an exposure of weakness in a company if their profitability is dependent on their accounting department and not on making better widgets."

He said that in previous reports, out-size CEO pay was often a red flag for bigger problems to come. The IPS has been compiling a pay report for 18 years. Among those whose leaders made the high pay list in years past and then had their businesses falter were Tyco, Enron and WorldCom.

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Twenty-five of the 100 highest-paid U.S. CEOs earned more last year than their companies paid in federal income tax, a pay study by a Washington think tank said Wednesday. At a time when lawmakers are facing tough choices in a quest to slash the national debt, the...
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