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View Diary: This week's episode of Hoarders: U.S. companies, $itting on trillion$ (49 comments)

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  •  drewfromct - a few thoughts (2+ / 0-)
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    phonegery, Front Toward Enemy

    We are bound by a lot of trade agreements which make it difficult and in many cases impossible to create tariffs. You can't have different tax rates for employee owned companies and companies owned by passive, financial investors. You can certainly create incentives to encourage employee ownership, but when it comes down to the pre-tax profit line you can't have different rates. I am not sure it would be constitutional, but I'm not a lawyer. You certainly could not have different tax rates that would be dependent on CEO pay. That makes no sense. Government has no business trying to dictate any executive compensation. The way to deal with excessive compensation is through higher marginal tax rates which would also apply to sports stars, media personalities, entertainers, lawyers, doctors, as well as business executives. As it is there is a cap of $1.0 million on executive compensation for tax purposes. If you have a CEO and you pay a $2.0 million salary, only the first million is an expense for computing the corporations income tax liability. That was a cap that Clinton put in place.

    "let's talk about that"

    by VClib on Wed Oct 27, 2010 at 09:51:25 PM PDT

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    •  Trade agreements (2+ / 0-)

      are treaties which we can unilaterally abrogate just as easily as the Bush administration renounced the ABM treaty. As for tax rates, Congress does have the power to write the tax code in such a way as to favor certain businesses over others--it's already been doing it for decades.

      The million dollar salary cap you speak of which Clinton signed into law is what led to the practice of overpaying CEOs and other top execs with stock options, as sales of stock are taxed at the much lower Capital Gains rate. A good solution there would be to exempt from taxation the first $25k of income regardless of the source, and then phase in a two-tiered tax system in which Capital Gains are taxed at a higher rate than income derived from actually working for a living.

      The bottom line is that we need a tax code that distinguishes between socially useful economic activity, such as producing healthy food or energy-efficient appliances, and socially harmful activities such as financial speculation that drives up prices without adding value to anything, and then rewards good behavior while punishing bad behavior. As we have repeatedly seen, the "free" market makes no moral distinction between products produced by well-paid workers in a healthy environment and products produced by child slaves in a dark and smoky sweatshop--the market only rewards what is most profitable.

      Trade agreements and tax codes are completely artificial. They are not written in stone, and what has been made by people can be unmade by people. They are, in the most literal sense, what we make of them. We can and must do better.

      Al Qeada is a faith-based initiative.

      by drewfromct on Thu Oct 28, 2010 at 06:41:28 AM PDT

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      •  drew - thanks for your thoughtful response (1+ / 0-)
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        drewfromct

        One correction however stock options to senior executives are "non-qualified" which means that they don't qualify for capital gains treatment. There are two primary reasons that companies went to a more equity oriented compensation approach for senior executives. First was the limit, for tax purposes, of $1.0 million for executive pay. To make any additional compensation qualify for tax purposes the compensation had to be "performance related". While incentive compensation can be in cash or stock (or options), until a few years ago it was preferable for the company, and its reported earnings, to weigh the plans more heavily with stock options. That advantage for reported earnings no longer exists and many companies are moving to awarding restricted stock, which is taxed at ordinary income rates. The second reason is that private equity funds attract the best management talent with large equity stakes and public companies have responded by increasing the equity ownership of senior management. While I am not currently serving on any public company boards I have been on the compensation committee of several public companies since 1988 and was chairman of the compensation committee for a NASDAQ company for five years until it was acquired a few months ago, so these are issues that I follow closely.  

        "let's talk about that"

        by VClib on Thu Oct 28, 2010 at 08:47:23 AM PDT

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        •  The problem here is (0+ / 0-)

          To make any additional compensation qualify for tax purposes the compensation had to be "performance related".

          how "performance" is defined. My impression is that "performance" for these purposes is defined solely by stock price, giving managers a strong personal fiduciary incentive to manipulate stock prices by whatever means necessary, fair or foul, including mass layoffs, outsourcing, and offshoring, all of which are harmful to honest workers and the economy as a whole.

          Again, I can not reiterate emphatically enough that the tax code must be strongly based on rewarding socially useful behavior while punishing socially harmful behavior. It should be self-evident that the behavior of executives such as "Neutron Jack" Welch and "Chainsaw Al" Dunlap who eliminate jobs by the tens of thousands is socially harmful activity, and that we must demand that government step in to curb abuses that the "free" market will not.

          Al Qeada is a faith-based initiative.

          by drewfromct on Thu Oct 28, 2010 at 09:06:45 AM PDT

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          •  drew - how performance is defined (0+ / 0-)

            is completely up to the Compensation Committee and in many cases does not include stock price. They can include metrics like earnings per share, cash flow, return on assets, return on equity, and one frequently used - earnings before interest, taxes, depreciation, and amortization (EBITDA). Even though it is moderated by the fact that options typically vest over four years, the problem with stock options is that they only have value if the stock appreciates above the market price when the options were granted. That is why there is a move away from options to restricted stock so that incentive compensation can focus more on the long term financial health of the company, rather than short term stock price swings. I

            t's more than just a tax code issue. By law in Delaware, the incorporated home to most US public corporations, the board can only manage the company in the long term best interest of the shareholders. Interestingly I was on the board of an Indiana incorporated company and in Indiana, as a director, you can take into account employees, suppliers, and community in addition to shareholders.

            "let's talk about that"

            by VClib on Thu Oct 28, 2010 at 10:37:29 AM PDT

            [ Parent ]

            •  That's what's wrong (0+ / 0-)

              how performance is defined is completely up to the Compensation Committee

              Where is the input from customers, shareholders, and rank-and-file employees? Too much power in the hands of too few is always a recipe for corruption and malfeasance.

              By law in Delaware, the incorporated home to most US public corporations, the board can only manage the company in the long term best interest of the shareholders.

              I would say that the law needs to change in order to include the interests of the employees as well as the community at large, wouldn't you?

              in Indiana, as a director, you can take into account employees, suppliers, and community in addition to shareholders.

              That's a slight step up, but we need to change the word "Can" to "Must" and then expand it from the State of Indiana to the Federal and then Global level.

              If corporations want to be granted the same rights as human individuals, then they must also be held to the same standard of responsibilities as human individuals, and that includes--or should include--a responsibility to care for each other and the environment we all share.

              Al Qeada is a faith-based initiative.

              by drewfromct on Thu Oct 28, 2010 at 11:01:18 AM PDT

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              •  drew - the board represents the shareholders (1+ / 0-)
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                drewfromct

                I have always felt that I serve on boards as the representative of the shareholders and have a legal and fiduciary duty to always make decisions in their best long term interest. I have never thought that I was there as a representative of management. In a company with hundreds, and many times thousands, of shareholders someone must be their eyes and ears. Under Delaware law a board member cannot represent anyone else except the shareholders, the owners of the company. All of our federal laws are based on protecting the investor/shareholder, not the other stakeholders or communities. To implement the changes you propose, which would reverse the course of eighty years of legal history, will take some very serious changes by Congress, and the legislatures of Delaware, and several other key states where large number of companies are incorporated. In every public company where I have served as chairman of the compensation committee the CEO has tried to have me taken off the board (fortunately not successfully). The compensation committee is not a place where you make friends with management.

                "let's talk about that"

                by VClib on Thu Oct 28, 2010 at 01:16:31 PM PDT

                [ Parent ]

                •  Then this (0+ / 0-)

                  To implement the changes you propose, which would reverse the course of eighty years of legal history, will take some very serious changes by Congress, and the legislatures of Delaware, and several other key states where large number of companies are incorporated.

                  is an area in which, IMHO, Progressives should be placing a long-term focus. The past three decades have seen a massive increase in the disparity of wealth which is indisputably harmful to the functioning of a healthy society. This trend needs to be reversed while there is still such a thing as the middle class. We need to change the paradigm that sees workers, shareholders, management, and the community at large as separate entities with conflicting interests at odds with one another, and replace it with one in which it is clear that when we all are doing better, we are all doing better.  

                  Al Qeada is a faith-based initiative.

                  by drewfromct on Thu Oct 28, 2010 at 01:26:08 PM PDT

                  [ Parent ]

                  •  drew - I agree (1+ / 0-)
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                    drewfromct

                    This should be an area of focus, because if you don't change the laws there is little that any company board can do to take a broader view of its responsibilities and take into account employees and other stakeholders.

                    "let's talk about that"

                    by VClib on Thu Oct 28, 2010 at 02:20:21 PM PDT

                    [ Parent ]

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