SiliconBeat

Over the past decade of covering business in Silicon Valley, I’ve periodically written about the annual study of executive compensation conducted by United for a Fair Economy and the Institute for Policy Studies. For most of its 15 years, that report has focused on the gap between the income of the average worker and CEOs.

Today, the groups are changing direction a bit on their report to focus on the amount taxpayers are subsidizing executive compensation. In a report called, “Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay,” the groups put our annual price tag at $20 billion.

On Friday, I spoke with Sarah Anderson, director of the global economy project at IPS, about the reason for the new focus. Anderson said the groups felt there was a new opportunity to influence the political debate in Washington about executive compensation. She noted that both Barack Obama and John McCain have at times bashed overpaid CEOs on the campaign stump this year.

So to move the debate forward, the groups looked at several pieces of pending legislation in Congress that address executive compensation either directly or indirectly by closing various loopholes. The groups culled through piles of documents amassed by various Congressional committees and other federal agencies to calculate the bill for taxpayers.

The report examines the impact of five different subsidies:

1. Preferential capital gains treatment of carried interest: $2,661,000,000: This refers to the tax code that lets hedge fund managers count income from their funds as capital gains rather than income. The result is a lower tax rate.

2. Unlimited deferred compensation: $80,600,000: More companies are offering executives plans that let them defer huge amounts of compensation until after they retire. This deferred compensation is not immediately taxed, much like putting money into your 401-k. But unlike your 401-k, executives often don’t have caps on the amount they can put in. And some companies guarantee above-market rates of returns.

3. Offshore deferred compensation: $2,086,000,000: Corporations that move their headquarters offshore also have numerous tax advantages when it comes to executive compensation.

4. Unlimited tax deductibility of executive pay: $5,249,475,000: Companies keep salaries under $1 million so they can deduct them from their tax bill. Instead, they offer big performance bonuses which don’t face limits on their deductibility.

5. Stock option accounting double standard: $10,000,000,000: The report cites an IRS study which shows that companies over inflate the value of executive stock options on their tax forms to lower their tax bills. But they underestimate the value on their earnings reports to inflate their earnings. According to the IRS, corporations in 2005 claimed deductions for options that were worth $61 billion more than the value reported on earnings statements.

“When you talk about executive compensation, people will say you’re just resentful of people who make a lot of money,” Anderson said. “This report shows that excessive pay is having an impact on all of us.”

Oh, and by the way, the group does calculate that CEOs in the S&P 500 made an average of $10.5 million in 2007, 344 times the take-home for typical American workers. By comparison,
chief executive pay only averaged 30 to 40 times the typical American worker paycheck back in the 1970s.