Drumbeats on CEO pay

True to predictions, the new Democratic-controlled Congress is moving toward reining in executive compensation. The House Financial Services Committee, headed by U.S. Rep. Barney Frank (see page 46), was scheduled to hold hearings on March 8 to revise a failed 2005 bill that would have required shareholders to approve pay packages for top executives. A similar form of the same bill is expected to be reintroduced.

Meanwhile, the Senate Finance Committee approved a bill that would end large-scale tax deferments for executive pay packages. The committee tacked onto the end of a bill raising the minimum wage language that would limit tax deferments on executive pay to $1 million. Currently, there is no cap on such deferment.

The law would also limit deductions for income taxes claimed by firms whose executives left during the year. If the limits on deferments and deductions are approved, taxes paid by some of the best-compensated U.S. corporate executives would rise beyond $800 million over 10 years.

Top officers routinely have avoided taxes by delaying pay in deferral accounts that are tapped after they retired. By deferring compensation, such as stock incentives and bonuses, they can avoid major tax hits.

Proponents of the deferment caps note that there are limits on what rank-and-file workers can defer in retirement plans such as 401(k)s, but higher-ranking executives are unfairly spared such restrictions.

The Senate committee move might have been the opening shot in a populist war. Jim Webb, Virginia’s incoming senator, set the tone during the Democratic Party’s response to President George W. Bush’s State of the Union address in January when he attacked executives who were paid “400 times” what ordinary workers were. Despite expectations of a quick passage in the Senate, the bill has been bogged down by delays over raising the minimum wage.