My Two Cents

Taxes in the 1930s… executive pay in the 2000s…

Chris Farrell Apr 21, 2009

One of the revelations during the Pecora hearings that upset ordinary people is that the wealthy didn’t pay income taxes. I think executive pay is the equivalent flashpoint issue for today.

The Wall Street Journal has a good enterprise story on boards of directors cutting back or even eliminating the senior management benefit of paying the taxes on perks.

The change comes amid increased investor criticism of the “gross-up” payments, which cover the tax bite for a variety of perks, including club memberships and personal use of corporate jets, as well as “golden parachutes” following takeovers….

Some governance experts believe the gross-up retreat will spread. Many boards view the present turmoil as a “once-in-a-lifetime opportunity” to remove abusive compensation practices, says Patrick McGurn, special counsel for proxy adviser RiskMetrics Group Inc., which recently added gross-ups to its list of poor executive-pay practices. It has advised against the reelection of certain directors at several companies this year because of reimbursement payments.

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