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Executive Reimbursement of Income Taxes on Executive Perks4/21/09 - Dozens of U.S. corporate executives are losing a controversial benefit -- and gaining bigger tax bills. As the recession fuels outrage over executive-pay excesses, 43 companies in Standard & Poor's 500-stock index will stop paying certain taxes for their top brass this year. 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. A 2008 study by RiskMetrics concluded that two-thirds of S&P 500 companies have agreed to cover the 20% excise tax owed on change-in-control exit packages that exceed a certain limit. The payments don't include regular income taxes, which the executives usually pay themselves. The corporate tab for gross-ups on excise taxes can be huge. That's partly because reimbursements for taxes count as taxable income, prompting most businesses to also cover those payments. In 2008, 60% of S&P 500 companies provided gross-ups on perks like club memberships and personal use of corporate jets. So far this year, 17 S&P 500 companies have disclosed plans to eliminate or reduce tax reimbursements on golden parachutes -- though some curbs cover only future executive employment agreements. These 43 S&P 500 companies reduced or eliminated some gross-ups for executives in 2009: Allstate Corp. American Electric Power Company Inc. Ameriprise Financial, Inc. Baxter International Inc. CenterPoint Energy Inc. Cephalon Inc. Comerica Inc. CONSOL Energy Inc. Dominion Resources Inc. Eaton Corp. EMC Corp. Exelon Corp. Genuine Parts Company Genworth Financial Inc. Hewlett Packard Humana, Inc. Janus Capital Group Inc. Johnson & Johnson KeyCorp. Kimberly-Clark Corp. Lowe's Companies Inc. McCormick & Company Inc. Medco Health Solutions Inc. Newell Rubbermaid Inc. Northrop Grumman Corp. NYSE Euronext Office Depot Inc. PNC Financial Services Qwest Communications International Inc. Reynolds American Inc. Sears Holdings Corporation SLM Corporation Starwood Hotels & Resorts Worldwide Inc. State Street Corp. Texas Instruments Incorporated Textron Inc. The AES Corporation The Home Depot Inc. The New York Times Company The Southern Company Thermo Fisher Scientific Inc. Tiffany & Co. V.F. Corp. Some companies say gross-up payments are sometimes necessary to recruit executives. But activist investors contend that tax reimbursements represent another example of treating the top brass like royalty. |
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