Congress has set rules regarding the tax deductibility of the salaries of CEOs, but forms of non-salary compensation have become popular. Obama would look at revamping definitions of compensation.
During the 2008 presidential campaign, Barack Obama promised to close loopholes in the corporate tax deductibility of CEO pay by changing Internal Revenue Service definitions of what counts as taxable compensation.
In 2009, we rated this promise Stalled, and now, three years later, we see no evidence of further action on this promise.
Section 162(m) of the Internal Revenue Code, enacted in 1993, limits how much executive compensation can be deducted at publicly traded corporations to $1 million per executive. But the provision has an exception -- corporations may deduct "performance-based" compensation. Critics say this amounts to a major loophole, because while shareholders must approve the compensation, they are not required to receive detailed accountings of the compensation plan.
A report released in August 2012 by the liberal Economic Policy Institute estimates that tax-deductible executive compensation cost the federal treasury $30.4 billion between 2007 and 2010.
However, no legislation or administration rule revisions addressed the deductibility of CEO pay.
"I can confidently say that there has been no change to the definition of compensation" during Obama's tenure, said Steven Balsam, an accounting professor at Temple University's Fox School of Business who wrote the institute's report.
We rate this a Promise Broken.
Barack Obama said during the campaign that he would look at revamping how the government defines compensation, particularly nonsalary compensation. That might include bonuses, stock options, shares or any other benefit.
We should state upfront that the financial landscape has changed dramatically since Obama made this promise prior to the broad economic collapse of October 2008. The government intervened to prop up several companies that might have collapsed otherwise. Afterward, the government said it would dictate executive pay for the handful of rescued firms, which include Citigroup, Bank of America, AIG, General Motors and Chrysler. That process is ongoing, and some companies are moving to pay back the money so they don't have to submit to pay limits.
Congress is also considering major legislation that would regulate the financial sector. The legislation includes "say on pay" provisions that would give shareholders a vote on executive compensation. But the vote would be nonbinding.
Obama has said several times he thinks Wall Street firms need to be mindful of inappropriate compensation during a time when many Americans face economic hardship. But we don't see evidence that has translated into new rules for CEO pay, particularly nonsalary compensation. It was not part of his tax proposals outlined for the fiscal year 2010 budget. So we rate this promise Stalled.