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Furor Rages As Investors Pay Executive Taxes

Monday, 26 Feb 2007 | 11:41 AM ET

Death and taxes are the two universal fates, right? Well, the latter may not hold true for certain executives, whose tax bills are footed by shareholders. On "Morning Call," two compensation experts debated the appropriateness of such supposed free rides.

Charles Elson, director of the Weinberg Center for Corporate Governance, decried "gross-ups": the practice by which elite execs have portions of their taxes paid by company funds. He called it "offensive from the shareholder standpoint," and told CNBC's Mark Haines that it "comes down to investor representation on the board" -- i.e., gross-ups are merely a means of slipping even higher compensation under the noses of shareholders, who would not OK such moves if they had a bigger boardroom voice.

Shareholders Paying CEO's Taxes
"Gross-ups" are when shareholders shell out to cover executivesâ?? taxes. CNBC's Mark Haines discusses whether gross-ups with Charles Elson, U. of Delaware's Weinberg Ctr. for Corporate Governance director, and Carol Goodman, Herrick, Feinstein employment lawyer

But Carol Goodman begged to disagree. She is a partner at Herrick, Feinstein, where she also serves as an executive compensation attorney. She called for "perspective," saying that gross-ups are "like any other perq." Goodman opined that compensation ought not be decided by investors anyway, as a company's board is "in the best position" to decide an executive's value -- not the firm's equity owners. Borrowing a phrase from the U.S. civil rights movement, she declared that if shareholders don't like the compensation packages at any level, they can always "vote with their feet" -- meaning, presumably, sell their shares and invest in another company.