All this is intended to do is show how easy it should be to legislatively cap executive comp for cash and other benefits (drivers, etc.) and make ALL VARIABLE AND PERFORMANCE-BASED COMP LOCKED UP until FIVE YEARS AFTER the executive leaves the company.
That's a disincentive to pursue short-term goals at the expense of the company's long-term performance and in incentive to act solely in the long-term interests of the company.
That's it. You can't do this with a tax.
But it’s meant to demonstrate how easy it should be in practice to effectuate, per the front page, the policy President Obama's administration is reportedly considering regarding regulation of executive compensation. Link to New York Times article.
Caveats and open invitations: this is not within my typical area of practice, so anybody who’s savvy with federal tax, securities, ERISA, etc., please feel to comment or correct.
AN ACT TO REGULATE EXECUTIVE COMPENSATION EFFECTIVE JANUARY 1, 2010
Title XX 18 of the United States Code shall be amended to include Section [__] as follows.
"Executives" as used in this Act shall mean all employees, officers, directors, contractors, consultants or any person providing services of any kind to a Subject Company.
1. "Subject Company" as used herein shall mean: (A) any company publicly traded on any securities exchange; (B) any company subject to regulation pursuant to federal law as a financial institution, bank, insurer, securities broker [expand without limitation to all federally regulated entities that, you know, touch money]; or (C) any subsidiary, parent or any entity controlling, controlled by, or under common control with any such company. "Subject Company" as used herein shall include any aggregate of any subsidiary, parent or any entity controlling, controlled by, or under common control with any such company.
2. As of the Effective Date of this Act, it shall be unlawful for any Subject Company to compensate [to be expanded with reference to the IRC treatment of salary and all benefits other than equity] Executive in excess of one million dollars ($1 million) per calendar year, subject to cost of living adjustments not to exceed the annual increase in the Consumer Price Index, except as expressly set forth in this Act.
3. Notwithstanding the provisions of Section 2 of this Act, it shall not be unlawful to provide compensation to an Executive in the form of equity in the Subject Company for which such Executive provides services, provided, however, that it shall be unlawful to provide such equity compensation as set forth in this Section 3 unless:(A) such equity compensation shall be restricted to prevent any exchange of ownership, including without limitation any exchange for any thing of value, including any pledge or encumbrance of such equity compensation, or any use of such equity compensation as security or collateral for any exchange for value ("Restricted Exchange"); and (B)the restrictions set forth in Section 3 (A) shall not expire sooner that five (5) years after the Executive ceases to perform any services for the Subject Company; and (C) at the time such Executive makes a Restricted Exchange, such Executive shall have no influence, formal or otherwise, on the management of the Subject Company or the exercise of the business judgment of any person who may influence the business judgment or discretion of other Executives who provide services to the Subject Company.
4. Any violation of this Act, including aiding or abetting any violation of this Act or conspiring to violate of this Act, shall result in: (A) forfeiture of any Restricted Exchange by the Executive; (B) payment of a fine in three (3) times the amount of the prohibited Restricted Exchange; (C)imprisonment of such Executive in a federal penitentiary for a base term of not less than ten (10) years, subject to loss enhancements as set forth in the United States Sentencing Guidelines and not subject to any mitigation as set forth in the United States Sentencing Guidelines, which imprisonment may not be stayed, suspended or served in any manner other than actual, physical confinement in a federal penitentiary; and (D) any other criminal or civil sanctions otherwise provided by federal or state law.
5. To the extent that any sanction hereunder is determined to be subject to the discretion of any federal judge to mitigate imposition of such sanction, Congress hereby indicates it intent to restrict the sanction to the base term, not subject to enhancement or mitigation.
6. This Act shall apply with equal force to any Executive who aids or abets, or colludes with or conspires with any person or entity, to violate this Act or to avoid imposition of the sanctions set forth herein, and nothing herein shall be construed to otherwise restrict or prevent the application of any other law concerning aiding or abetting, being an accomplice to, or conspiring to commit any violation of this Act.
7. No state or federal law, statutory, common law, regulatory or otherwise, shall be applied to permit the estate of any Executive to avoid any sanctions, forfeiture or fines set forth herein by reason of the death of the Executive. [the Ken Lay provision]
8. No state or federal law, statutory, common law, regulatory or otherwise, shall be applied in any way to permit any Executive to avoid any sanctions, including without limitation forfeiture or payment of fines set forth herein, by reason of any law concerning the payment, taxation or regulation of pensions, retirement plans, or any deferred compensation. [The OJ Simpson provision]
9. Any Executives who permits or votes to permit any Subject Company to provide compensation in violation of this Act shall be subject to sanctions hereunder as if such Executive personally received such compensation.
10. To the extent any provision of this Act shall be deemed to conflict with state law, this act shall be deemed to pre-empt such state law.