April 10, 2007

The $1 Salary

One of my favorite blogs, Valleywag.com (the valley's people magazine), posted an interesting and well-written answer to why so many of today's CEO's are taking advantage of the $1 dollar salary. It makes sense - it all comes down to taxes (and some clever PR).

"It's proxy season, which means it's time for the CEO's spin-critters to spotlight the boss' modest salary -- only one dollar -- in the hope that idiotic business reporters miss the lavish stock grants, the fat pension package, and luxurious perks. Which they usually do. Apple's Steve Jobs started the fad for token salaries; it's been taken up by Eric Schmidt of Google, and the search engine's two founders; and even Yahoo's old-school boss, Terry Semel. So self-sacrificing? Well, not at all.

Tech stocks are more volatile than the market as a whole, which means that stock options are worth more than in other industries; they form the bulk of an executive's compensation; the salary is an irrelevance. The token salary looks good in the press briefing; even if the rest of the package is obscene, it's too complex for reporters to arrive at a shocking headline figure.

But here's the main reason Valley executives, and their flacks, should shut up about the one-dollar base: it's a tax dodge. Stock option gains are taxed, typically, as capital gains; the federal tax rate on that is 15%. If that same value was paid as orthodox salary, it would be taxed at 35% at the margin. The token salary is a creature of the Bush tax cuts, which so shifted the fiscal burden to earned income. And it is a reminder that the stock-option-rich executive class is taxed at about half the rate of the wage slaves. That's grotesque. By all means play the tax laws; but don't draw attention to the fact."

SOURCE: Valleywag.com, 4/10/07

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