Albert Meyer

Outlandish CEO Pay: How to Fix the Problem

First, the IRS needs to withdraw the provision in the tax code that allows companies to deduct the discount at which they issue stock to employees. For years, companies have maintained that stock-based compensation was not an expense, but they have eagerly taken a huge tax deduction on that account in their tax returns.

Second, cash spent on buying back shares that were issued to employees in lieu of cash compensation should be reported in the operating section of the cash flow statement. If the IRS wants to grant companies a compensation deduction, then base it on these cash outflows. Cash outflows relating to stock repurchases should only be reported as a financing activity, i.e., an allocation of capital, once it has been shown that all dilution caused by stock-based compensation has been mopped up. Executives would have us believe that the stock-based compensation expense, as recognized in the income statement, is a non-cash expense. Cash spent on stock repurchases to combat dilution caused by stock-based compensation betrays this notion, and if properly disclosed as suggested above, would better inform shareholders of the true cost of share-based compensation.

Mutual fund, MIRZX, shuns companies that use stock-based compensation, unless used minimally, i.e., great companies like Telefonica, Nestle, Syngenta, TransCanada, StatOil, Tenaris, Southern Copper... to name a few.

Does the Administration Care About Executive Compensation?

captainccs: "If you don't like exorbitant executive pay, bonuses and stock options just don't buy shares of the offending company. With enough like minded people the stock options will become worthless. :)"

Exactly!... MIRZX is a mutual fund that avoids companies that use and abuse options: SYT, TEVA, CHL, TEF, TRP, EXP, ACH, STO, PCU, SFL top 10 holdings - 37% of portfolio. Portfolio turnover 3%

If govt. really cared about exec comp they would remove the tax deduction for the notional value of stock issued to employees, i.e., the discount at which stock issued to employees. The Norwegian company described employee stock options as a criminal activity.