show me the money
June 16, 2005
Raise the Price of Fame
By NORMAN R. AUGUSTINE
FEW people are aware that several years ago Congress, in its wisdom, limited to $1 million the amount of a chief executive's pay that a corporation could annually deduct as a business expense when calculating its income tax. The provision of the legislation, imaginatively titled by ebullient accountants as "Section 162(m)" of the Internal Revenue Code, did permit exceptions - for example, when the pay was "performance-based" and tied to objective goals.
The government deems the leadership of companies that do business with it to be even less worthy. In fiscal year 2005, companies that, say, provide equipment for the armed forces, are precluded from recovering in the total cost of those products annual compensation for a chief executive over $473,318. (One cannot help but be in awe over the government's ability to decree with such exactitude.)
Nonetheless, in this instance Washington may have been on to something. The occasional good chief executive aside, how could anyone defend the extravagant compensation of Bernard J. Ebbers (who pocketed more than $400 million in salary and company-secured loans before WorldCom crashed); Kenneth L. Lay (who received more than $100 million in compensation the year Enron went belly up); or Richard M. Scrushy of HealthSouth ($125 million over five years).
Assuming that having Congress seek to influence pay scales in the private sector is good public policy, we must ask ourselves - even recognizing that chief executives are now about as popular as Attorney General Eliot Spitzer at a Business Roundtable picnic - why focus only on chief executives?
Why not really increase tax receipts by applying a version of the existing law to superstar athletes, rock stars, movie directors and a few others one might, with a bit of extra effort, be able to conjure up? After all, wouldn't there be some rough justice to the public getting something back from the likes of Jason Giambi and Barry Bonds (both at the center of baseball's steroid storms) with contracts of $120 million for seven years and $90 million for five years, respectively? Or Latrell Sprewell (who choked his basketball coach) at $62 million for five years, or Kobe Bryant (who had rape charges against him dropped) with his new contract at $136 million for seven years? Or Howard Stern (fined by the Federal Communications Commission), who recently signed a $500 million, five-year radio contract?
The new legislation could be called the "Robin Hood Tax Act of 2005." How could anyone be against Robin Hood? The beauty of the Robin Hood Act is not what these funds could do for our country, but what our country could do with these funds. The added revenues would not be used to reduce the national debt, modify Social Security, or even pay for premium pork. Rather, they would underwrite just three initiatives: providing merit bonuses for public school teachers, supplementing the wages of nurses working in public hospitals, and increasing the pay and death benefits of America's soldiers serving in combat zones.
And best of all, the pain would hardly be noticeable to the big earners involved. As Randy Moss of the Minnesota Vikings put it after being fined $10,000 for pretending to moon Green Bay fans: "Ain't nothing but 10 grand. What's 10 grand to me?"
Norman R. Augustine is the retired chairman and chief executive of the Lockheed Martin Corporation.
Copyright 2005 The New York Times Company
Raise the Price of Fame
By NORMAN R. AUGUSTINE
FEW people are aware that several years ago Congress, in its wisdom, limited to $1 million the amount of a chief executive's pay that a corporation could annually deduct as a business expense when calculating its income tax. The provision of the legislation, imaginatively titled by ebullient accountants as "Section 162(m)" of the Internal Revenue Code, did permit exceptions - for example, when the pay was "performance-based" and tied to objective goals.
The government deems the leadership of companies that do business with it to be even less worthy. In fiscal year 2005, companies that, say, provide equipment for the armed forces, are precluded from recovering in the total cost of those products annual compensation for a chief executive over $473,318. (One cannot help but be in awe over the government's ability to decree with such exactitude.)
Nonetheless, in this instance Washington may have been on to something. The occasional good chief executive aside, how could anyone defend the extravagant compensation of Bernard J. Ebbers (who pocketed more than $400 million in salary and company-secured loans before WorldCom crashed); Kenneth L. Lay (who received more than $100 million in compensation the year Enron went belly up); or Richard M. Scrushy of HealthSouth ($125 million over five years).
Assuming that having Congress seek to influence pay scales in the private sector is good public policy, we must ask ourselves - even recognizing that chief executives are now about as popular as Attorney General Eliot Spitzer at a Business Roundtable picnic - why focus only on chief executives?
Why not really increase tax receipts by applying a version of the existing law to superstar athletes, rock stars, movie directors and a few others one might, with a bit of extra effort, be able to conjure up? After all, wouldn't there be some rough justice to the public getting something back from the likes of Jason Giambi and Barry Bonds (both at the center of baseball's steroid storms) with contracts of $120 million for seven years and $90 million for five years, respectively? Or Latrell Sprewell (who choked his basketball coach) at $62 million for five years, or Kobe Bryant (who had rape charges against him dropped) with his new contract at $136 million for seven years? Or Howard Stern (fined by the Federal Communications Commission), who recently signed a $500 million, five-year radio contract?
The new legislation could be called the "Robin Hood Tax Act of 2005." How could anyone be against Robin Hood? The beauty of the Robin Hood Act is not what these funds could do for our country, but what our country could do with these funds. The added revenues would not be used to reduce the national debt, modify Social Security, or even pay for premium pork. Rather, they would underwrite just three initiatives: providing merit bonuses for public school teachers, supplementing the wages of nurses working in public hospitals, and increasing the pay and death benefits of America's soldiers serving in combat zones.
And best of all, the pain would hardly be noticeable to the big earners involved. As Randy Moss of the Minnesota Vikings put it after being fined $10,000 for pretending to moon Green Bay fans: "Ain't nothing but 10 grand. What's 10 grand to me?"
Norman R. Augustine is the retired chairman and chief executive of the Lockheed Martin Corporation.
Copyright 2005 The New York Times Company
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