"Dodgy" Tax Policies and CEO Pay

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In its 18th annual report on CEO compensation, the Institute for Policy Studies zeroed in on Americans' current angst about how our government's going to pay its bills, by exploring the link between CEO pay and corporate taxation.

In Executive Excess 2011: The Massive Rewards for Tax Dodging, the IPS points out that 25 of the 100 highest-paid chief executive officers in the U.S. took home more in salary last year than their corporations paid in annual taxes.

As American as apple pie?
The 25 handsomely paid corporate chieftains in question made an average of $16.7 million in 2010. At 13 of those companies, CEO pay increased while either corporate tax bills fell, or refunds increased. Not surprisingly, the companies in question aren't struggling, with average global profits of $1.9 billion.

The most profitable of the 25 companies in question is frequently lauded as an all-American corporation and market bellwether: General Electric (NYS: GE) . GE received a staggering $3.3 billion tax refund. It also ranked high on the list with regard to lobbying expenditures, having spent $41.8 million. Indeed, 20 of the 25 companies in the hot seat not only paid their CEOs more than they shelled out in taxes, but also spent more on lobbying than on corporate taxes.

Artful dodgers
Let's take a look at five high-profile examples from the report.

Company

CEO Pay in 2010

2010 Corporate Tax

International Paper (NYS: IP)

$12.3 million

$249 million refund

Prudential (NYS: PRU)

$16.2 million

$722 million refund

General Electric

$15.2 million

$3.3 billion refund

Verizon (NYS: VZ)

$18.1 million

$705 million refund

Bank of New York Mellon (NYS: BK)

$19.4 million

$670 million refund

*Institute for Policy Studies, Executive Excess 2011: The Massive Rewards for Tax Dodging.

At least Boeing (NYS: BA) paid $13 million in federal taxes in 2010. However, its CEO still managed to top that by 6%, raking in $13.8 million.

IPS's data suggests that many CEOs reap ample rewards for taking advantage of loopholes, tax shelters, tax subsidies, and other strategies to lower their businesses' tax bills.

Several of the companies spotlighted in the report are defending themselves from the "tax dodger" implication. The New York Timesreported that Verizon disputed IPS's conclusions, stating that the CEO pay level cited is a target, which will be paid over time only if certain goals are reached. It also said the report doesn't address its deferred taxes, which it plans to pay over time.

For the corporate welfare...
We all know now that our government faces a dire fiscal outlook. The time has clearly come for reasonable measures to tackle very real problems. The government probably needs to cut spending and raise revenue to pay for crucial services. Squeezing revenue from the increasingly strapped middle-class, much less the poor, isn't exactly a fair or equitable way to raise the money we need to dig ourselves out of debt.

Beyond the ratio of CEO pay to corporate taxes, CEO compensation continues to jet higher. According to IPS, in 2010 the ratio of CEO pay to that of the average worker in the U.S. rocketed to 325 to 1, up from 263 to 1 the year before. Although I have no problem with high CEO pay for good performance, I suspect that such strong performance is as rare as CEO pay hikes are common.

We all know that corporate America goes out of its way to generate profits no matter what, and the Institute for Policy Studies points out that current incentives encourage corporate chiefs to do all they can to avoid taxes. However, loopholes, tax subsidies, and lobbying for other theoretically "profit-enhancing" policies sound more like begging for corporate welfare than skillfully running an effective business.

Is your company paying its CEO big bucks to buck the system? Shareholders should demand more shared responsibility among their companies' leaders, especially in today's dire times.

Check back atFool.comevery Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

At the time this article was published

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