Report: You’re Subsidizing CEOs’ Massive Pay

A tax loophole allows corporations to deduct millions when they give CEOs huge stock options and other types of “performance pay.”


If you shake your head when hearing about multimillion-dollar pay packages for executives, you’re probably not going to be happy to hear that you as a taxpayer have helped subsidize that huge CEO pay.

It’s true. A new report by the left-leaning Institute for Policy Studies found that a tax loophole has allowed corporations “to deduct unlimited amounts from their income taxes for the cost of executive compensation — as long as the pay is in the form of stock options and other so-called ‘performance pay,’” the institute said.

In other words, the more a company pays its top executive in performance pay, the less the company has to pay in taxes.

This loophole has provided a massive subsidy for exorbitant executive compensation.

The report focuses specifically on the restaurant industry, and for good reason. The industry has proven to be a double burden for taxpayers. While restaurant workers are often paid so little that they are forced to rely on taxpayer-funded programs for the low-income, taxpayers are also unknowingly helping to subsidize millions in executive compensation.

At the same time, the National Restaurant Association is lobbying to block minimum wage increases.

According to CBS MoneyWatch:

The chief executives of the NRA’s 20 largest members take home more than $662 million in fully deductible “performance pay” over the past two years, which reduced their corporate tax bills by $232 million, the study found. Meanwhile, many low-paid workers at restaurants run by NRA members — such as McDonald’s and Chipotle — rely on government programs for services they can’t afford on their earnings.

A number of restaurant corporations are using tax subsidies to boost executive pay, CNN Money said. Here are a few of the heavy hitters.

  • Starbucks. The company gave CEO Howard Schultz a total of $236 million in performance pay for 2012 and 2013. “That translates into an $82 million taxpayer subsidy — enough to raise the pay for more than 30,000 baristas to $10.10 per hour for a year of full-time work,” the institute said.
  • McDonald’s. The fast-food chain dished out $34 million in CEO stock options in 2012 and 2013, which generated a taxpayer subsidy of $12 million.
  • Chipotle. Handing out nearly $200 million in performance pay to its CEO in 2012-2013 led to a $69 million tax break.
  • Yum! Brands (owner of Taco Bell, KFC and Pizza Hut). The company received a $23 million tax break after handing out $67 million in performance pay in the past couple of years.

How do you feel about subsidizing executives’ excessive performance pay? Share your thoughts below or on our Facebook page.

Stacy Johnson

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