April 24, 2024

As Federal Furloughs Loom, Administration and Congressional Officials Take Pay Cuts

On Wednesday, President Obama jumped in with his own show of solidarity by pledging to return to the Treasury 5 percent of his $400,000 salary.

By Thursday, the Obama administration’s stampede to embrace the politics of self-sacrifice was on. Cabinet secretaries practically tripped over themselves to hand over parts of their paycheck as federal workers brace for furloughs because of the across-the-board budget cuts known as the sequester.

Secretary of State John Kerry said he would give 5 percent of his $200,000 government salary to charity, and the Justice Department said that if its workers are furloughed, Attorney General Eric H. Holder Jr. would give up his pay for however many days his workers go without a paycheck.

Of course, they can well afford it. Mr. Kerry has an estimated net worth exceeding $200 million and Mr. Hagel, Mr. Holder and Mr. Obama are all millionaires.

But by the end of the day, the merely affluent, at least by Washington standards, were lining up. Janet Napolitano, the homeland security secretary who has an estimated net worth between $93,000 and $700,000, will forgo 5 percent of her salary, her office said. Treasury Secretary Jacob J. Lew, who is worth between $750,000 and $1.7 million, will also give up a portion of his pay, although Treasury officials would not specify how much.

All cabinet secretaries make about $200,000 a year, and the richest of them have multiple millions.

Mr. Holder’s net worth is estimated between $4 million and $8 million, according to the Center for Responsive Politics, which calculates the finances of government officials based on publicly available financial disclosure forms. Mr. Hagel’s latest financial disclosure documents show millions of dollars in assets in various investment accounts. The Obamas’ net worth is estimated somewhere between $2.6 million and $8.3 million, thanks in large part to income from the president’s book sales.

Still, not all cabinet members were giving themselves pay cuts. Kathleen Sebelius, the health and human services secretary whose estimated net worth is as high as $5 million, had no plans to reduce her salary because her department was not expecting any furloughs, her office said. A similar dynamic has slowly been playing out on Capitol Hill, where the sequester cuts will affect the budgets of Congressional offices but not members’ salaries. (Like the president and cabinet secretaries, salaries of the House and Senate are set by law.)

Eleanor Holmes Norton, who represents the District of Columbia and its hundreds of thousands of federal employees, said last month that she would stop collecting her pay for each day federal employees are furloughed.

“If you’re a member of Congress, surely the notion of lead by example should not just be a slogan,” she said, adding that she would not be able to look her colleagues and constituents in the eye if she continued to collect her full salary. “You might feel a little better about seeing them in the elevator if you’re sharing in their pain.” Members of the House and Senate make $174,000 annually.

Representative Tammy Duckworth, Democrat of Illinois, has said she would give back 8.4 percent of her pay, an amount roughly equal to the cut that many domestic programs are facing.

That was not enough self-sacrifice for Senator Lindsey Graham, Republican of South Carolina, who said he was giving up 20 percent of his pay.

Senator Mark Begich of Alaska, a Democrat who is expected to face a tough re-election race in 2014, said he would return part of his salary to the Treasury. But a call to his office to find out how much was met with a voice mail recording saying that sequester cuts had forced it to reduce office resources.

Article source: http://www.nytimes.com/2013/04/05/us/politics/as-federal-furloughs-loom-administration-and-congressional-officials-take-pay-cuts.html?partner=rss&emc=rss

Wealth Matters: The End of a Decade of Uncertainty Over Gift and Estate Taxes

For estate and gift taxes in particular, all but the richest of the rich will probably be able to protect their holdings from taxes, now that Congress has permanently set the estate and gift tax exemptions at $5 million (a level that will rise with inflation.)

“You could say this eliminates the estate tax for 99 percent of the population, though I’ve seen figures that say 99.7 or 99.8,” said Rich Behrendt, director of estate planning at the financial services firm Baird and a former inspector for the Internal Revenue Service. “From a policy point of view, the estate tax is not there for raising revenue. It’s there for a check on the massive concentration of wealth in a few hands, and it will still accomplish that.”

And while Congress also agreed to increase tax rates on dividends and capital gains to 20 percent from 15 percent for top earners — in addition to the 3.8 percent Medicare surcharge on such earnings — the rates are still far lower than those on their ordinary income. For the earners at the very top, whose income comes mostly from their portfolios of investments, and not a paycheck like most of the rest of us, this is a good deal.

The estate tax, once an arcane assessment, has been in flux and attracting significant attention since 2001. That was when the exemption per person for the estate tax began to rise gradually from $675,000, with a 55 percent tax for anything above that amount, to $3.5 million in 2009 with a 45 percent tax rate for estates larger than that. Estate plans were written to account for the predictable increases in exemptions.

Then in 2010, contrary to what every accountant and tax lawyer I spoke to at the time believed would happen, the estate tax disappeared. Congress and President Obama could not reach an agreement on the tax. So that year, for the first time since 1916, Americans who died were not subject to a federal estate tax. (Their estates still paid state estate taxes, where they existed, and other taxes, including capital gains, on the value of the assets transferred.)

At the end of 2010, President Obama and House Speaker John A. Boehner reached an agreement that was just as unlikely as the estate tax expiring in the first place: the new exemption was $5 million, indexed to inflation, with a 35 percent tax rate on any amount over that, and it would last for two years. The taxes and exemptions for gifts made during someone’s lifetime to children and grandchildren were also raised to the same level, from $1 million and a 55 percent tax above that.

As I have written many times, this was a far better rate and exemption than anyone expected. It also created a deadline of Dec. 31, 2012, for people who could make a major gift up to the exemption level or above the amount and pay the low gift tax.

Using the gift exemption was enticing because it meant those assets would appreciate outside of the estate of the person making the gift. Even paying the tax became attractive to the very rich because of how estate and gift taxes are levied. Take, for example, someone who has used up his exemption and wants to give an heir $1 million. The amount it would take to accomplish this differs depending on when it is given. In life, it would cost $1.4 million because the 40 percent gift tax is paid like a sales tax. If it was given after death, the estate would have to set aside about $1.65 million after the 40 percent estate tax was deducted. But this presented a conundrum: while it may make perfect sense to give away a lot of money during your lifetime and save on estate taxes, it means ceding control of cash, securities or shares now. What if you end up needing them? It wasn’t an easy decision, and it led to a fourth-quarter rush.

As of this week, this is no longer an issue. The estate and gift tax exemptions are permanently set at the same $5 million level, indexed for inflation, and the tax rate above that exemption is 40 percent, up from 35 percent. With indexing, the exemption is already about $5.25 million per person — double for a couple — and it will rise at a rate that means most Americans will continue to avoid paying any federal estate tax.

Article source: http://www.nytimes.com/2013/01/05/your-money/fiscal-deal-ends-decade-of-uncertainty-over-gift-and-estate-taxes.html?partner=rss&emc=rss

Fair Game: Paychecks as Big as Tajikistan

But despite the reams of figures about pay in any given year, shareholders often have to struggle to put those numbers into perspective. Companies typically hold up pay from previous years as a benchmark, but just how this paycheck stacks up against, say, a company’s earnings or stock market performance is rarely laid out.

Investors can run the numbers themselves, of course, but it’s a pretty laborious process. As a result, pay for most public companies’ top executives exists in a sort of vacuum, as far as investors are concerned. Shareholders know they pay a lot for the hired help, but a lot compared with what?

Answers to that question come fast and furious in a recent, immensely detailed report in The Analyst’s Accounting Observer, a publication of R. G. Associates, an independent research firm in Baltimore. Jack Ciesielski, the firm’s president, and his colleague Melissa Herboldsheimer have examined proxy statements and financial filings for the companies in the Standard Poor’s 500-stock index. In a report titled “S. P. 500 Executive Pay: Bigger Than …Whatever You Think It Is,” they compare senior executives’ pay with other corporate costs and measures.

It’s an enlightening, if enraging, exercise. And it provides the perspective that shareholders desperately need, particularly now that they are being asked to vote on corporate pay practices.

Let’s begin with the view from 30,000 feet. Total executive pay increased by 13.9 percent in 2010 among the 483 companies where data was available for the analysis. The total pay for those companies’ 2,591 named executives, before taxes, was $14.3 billion.

That’s some pile of pay, right? But Mr. Ciesielski puts it into perspective by noting that the total is almost equal to the gross domestic product of Tajikistan, which has a population of more than 7 million.

Warming to his subject, Mr. Ciesielski also determined that 158 companies paid more in cash compensation to their top guys and gals last year than they paid in audit fees to their accounting firms. Thirty-two companies paid their top executives more in 2010 than they paid in cash income taxes.

The report also blows a hole in the argument that stock grants to executives align the interests of managers with those of shareholders. The report calculated that at 179 companies in the study, the average value of stockholders’ stakes fell between 2008 and 2010 while the top executives at those companies received raises. The report really gets meaty when it compares executive pay with items like research and development costs, and earnings per share.

The report, for instance, compared earnings per share with cash pay — just salary and bonus, if there is one. It identified 24 companies where cash compensation last year amounted to 2 percent or more of the company’s net income from continuing operations.

Topping this list is Allergan Inc., the health care concern whose top executives received, after taxes, an estimated $2.6 million in salaries last year. That amounted to 50 percent of what the company earned from continuing operations, the report said.

Caroline Van Hove, an Allergan spokeswoman, said that the salaries were large when compared with net income in 2010 because one-time charges reduced earnings significantly that year; in previous years, she noted, earnings were far higher than executives’ pay. She also said the company’s C.E.O. had not received an increase in salary over the past three years.

Moving on to R. D. costs, the report examined the 62 technology companies in its sampling that reported such an expense, excluding certain costs associated with acquisitions.

Mr. Ciesielski found that the median level of executive pay was equal to 5.3 percent of these companies’ R. D. expenditures.

Topping the pack was Jabil Circuit, a manufacturer of electronic circuits and boards for computer, communications and automotive markets. In 2010, its $27.7 million in total executive pay almost matched the $28.1 million it spent on R. D. While last year may have been an outlier, over the past four years, Jabil’s pay equaled 57.2 percent of the amount it spent on research and development.

Jabil did not respond to a request for comment.

Finally, there’s the comparison of executive pay with market capitalization. As Mr. Ciesielski noted, this calculation provides the biggest shock value.

Eleven companies analyzed in the report gave top executives a combined pay package amounting to 1 percent or more of the companies’ average market value over the course of the year. The Janus Capital Group, the mutual fund concern, topped the list, with pay totaling almost $41 million for five executives. This accounted for 1.95 percent of the company’s average market value over 2010.

“To earn their keep,” the report said, “managers would have to create stock market value in the full amount of their pay.” The executives at Janus failed to increase value in 2010, when the stock closed out the year roughly where it had begun it. This year, the company’s shares are down almost 30 percent.

Janus declined to comment.

Mr. Ciesielski says he believes that shareholders need more context when it comes to pay practices — and that rule makers should improve pay reports. “The disclosures really are not sufficient to get people fired up,” he said in an interview last week, “unless they add up the compensation and find out how it relates to other things.”

“We need a different model,” he added. “There is a real lack of information here about how shareholders’ funds are being managed.”

THIS may explain why shareholders at annual general meetings so rarely vote against pay practices. Broc Romanek, who is editor of CompensationStandards.com, said that a majority of shareholders at only 34 companies, or 2 percent of those that have held votes so far this year, have rejected executive pay packages.

If shareholders could size up the impact of pay on a company’s operations, they’d be more informed, Mr. Ciesielski said. For example, why not show a company’s total executive pay against its overall labor costs? Or disclose top pay as a percentage of marketing expenditures, if that is what propels a company’s results?

“How does executive pay relate to the basic drivers of what makes the company work?” Mr. Ciesielski asked. “We should be exploring that kind of information.”

Article source: http://feeds.nytimes.com/click.phdo?i=d8239fb5f8bab8ac055d87e2094094c5

DealBook: JPMorgan Paid Dimon $20.8 Million in 2010

JPMorgan Chase paid Jamie Dimon, its chief executive, a total of $20.8 million last year, a substantial increase from $1.3 million he received in 2009, the bank disclosed Thursday afternoon in a regulatory filing.

Mr. Dimon’s big paycheck included a $5 million cash bonus for 2010, according the bank’s annual proxy statement. He received no cash bonus in 2009 as the financial crisis lingered.

In comparison, Goldman Sachs disclosed last week that it paid Lloyd C. Blankfein, its chief executive, a total of $19 million in 2010, including a $5.4 million cash bonus.

Mr. Dimon’s compensation included $14.2 million in restricted stock and options awarded in 2010 for his performance from the previous year. His salary remained unchanged at $1 million.

In its filing with the Securities and Exchange Commission, JPMorgan noted that its calculation of Mr. Dimon’s 2010 compensation did not include the $17 million in restricted stock and options that he was awarded in February for his performance last year.

The big increase in Mr. Dimon’s compensation came in a year in which JPMorgan’s annual earnings jumped 48 percent, to $17.4 billion.

Mr. Dimon’s total compensation is still well below the $35.8 million he received in 2008, according to the filing.

His compensation last year included $95,292 for personal air travel, $45,730 for personal use of cars and $421,458 in moving expenses.

Article source: http://feeds.nytimes.com/click.phdo?i=6ac4951f5a01ffacc43f353361756b9e