Two gold stars!
Most weeks, it’s hard enough to find one company that’s worthy of a rare footnoted.org gold star. Indeed, after 3 1/2 years of blogging, we’ve only handed out 30 gold stars. But this week, we’re handing out two.
To be fair, this 8-K filed by E*Trade Financial (ETFC) was filed late last Friday, so technically it was a 2006 filing. As footnoted.org regulars know, anything filed late on a Friday, particularly before a holiday weekend, usually means that the company is trying to bury something. But in the filing, E*Trade said that its compensation committee had decided to eliminate the tax gross-up that executives would receive following a change-in-control both in 2007 and in all years going forward. That’s definitely worth a gold star.
Footnoted.org’s position on tax gross-ups should be well known: they’re pretty gross. If you happen to make a lot of money through a merger or some other event, you ought to be able to afford some skilled legal/accounting talent to help you minimize the tax burden. Companies that provide these gross-ups are simply enabling greed by removing a key incentive to donate to non-profits and charitable causes as a way to minimize a hefty tax bill.
The second gold star goes to Keithley Instruments (KEI) which filed its proxy yesterday. Like many companies, Keithley is in the midst of the stock options backdating mess. In the compensation committee report, the committee said that as a result of the “costs and management time incurred by the company” on the back-dating investigation, neither Chairman and CEO Joseph Keithley nor CFO Mark Plush would receive a 2006 bonus or a salary increase and options for 2007. Thanks to a reader for pointing out this change — we can only read so many filings and things are bound to slip through the cracks.
One can only hope that two gold stars on the first Friday of 2007 is a positive sign of things to come!
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January 5th, 2007 at 2:01 pm
I am not sure how you arrive at the idea that tax gross-ups somehow disincentivize people to donate to charity (not all non-profit donations are tax-deductible). My impression would be that most of the people you speak have sigificant tax bills on their income (other than those perks or awards that are grossed up), so I don’t see why the tax benefit of an incremental dollar of charitable giving would be in any way reduced for them.
Tax gross-ups are “just” extra pay. I don’t think they distort charitable activity, but I do think that they tend to add some unecessary complexity to executive pay (you might as well just increase salary/bonus).
January 5th, 2007 at 2:23 pm
While I don’t have any formal research, numerous people I have spoken to in the non-profit world, including those involved in raising money for large universities, have told me that they believe some of these hefty gross-ups have been a disincentive for some — not all — of their potential donors. I’m not a tax accountant and I don’t pretend to be. But if someone who wins the lottery has to pay their fair share of taxes, why should top executives get out of paying theirs? Don’t get me wrong — they should hire the best talent to minimize their tax bill. But the idea of making someone whole is more than a bit probelematic for numerous reasons.
January 5th, 2007 at 5:17 pm
Re: Petty “gross ups” and other silly items:
This is quoted from The Gap’s Proxy Statement dated May 9, 2006:
“We occasionally invite director spouses to accompany directors to Board related events, for which we pay or reimburse travel expenses. These travel expenses are reported as compensation to the director and are grossed up to cover taxes. All directors and their immediate families are eligible to receive discounts on our merchandise in accordance with the Gap Inc. corporate employee merchandise discount policy.â€
The Gap is now considering the possibility of selling off its Old Navy chain and its Board will be involved. Do you think they will seek to keep the employee discounts as a golden parachute?
Respectfully,
Sam E. Antar (former Crazy Eddie CFO & Ex-felon)
January 5th, 2007 at 10:27 pm
ML:
I’d probably hold off on handing out that Gold Star to Keithley Instruments. The Company may have held off in handing out a cash bonus to its CEO–but in a typical ruse–the Board found it convenient to reward him $428,925 in Restricted Stock Units (for ‘future performance’–winkie-winkie!)
Best,
David J. Phillips, Publisher
http://www.10qdetective.blogspot.com