What are CEOs being rewarded for? The report argues that top executives are rewarded for their ability (and willingness) to aggressively avoid taxes, benefitting company profits and shareholders, if not employees as a whole. Aside from their own paychecks, the profits made by tax avoidance are funneled into lobbying and campaign donations; two strategies to ensure that corporate taxes are low and regulation light.
Who’s to Blame?
While it’s easy to point fingers at corporations for their tax avoidance behavior, it’s important to remember that it’s not just CEOs who are being rewarded for dodging the intent, if not the letter, of the law. Politicians must be willing to leave open the loopholes that allow corporations to dodge taxes.
Companies like Citigroup and Bank of America run 427 and 115 subsidiaries in tax havens respectively. These practices are all perfectly legal, thanks to the unwillingness of the House and Senate to impose stricter regulations. It’s a safe bet that campaign donations and sweet-talking lobbyists go a long way toward fueling political complacency in corporate treatment by the government. Corporate executives may be motivated by greed and self interest, but many politicians don’t lag far behind.
Legislation passed in September 2007 aims to create more transparency on the lobbyists’ influence in Washington. The Honest Leadership and Open Government Act (HLOGA) placed new restrictions on lobbyist's activities, as well as requiring quarterly disclosure reports on the part of organizations and the lobbyists they employ. The fine for failing to correct a defective disclosure report within 60 days of notification? Up to, and not exceeding, $200,000. Barely a slap on the wrist for corporations averaging global profits of $1.9 billion.
The Dodd-Frank Financial Reform Law, signed by President Obama in July of 2010, requires companies to disclose CEO salaries and median employee salaries (calculated excluding the CEO). The law also requires companies to express the relationship between financial performance and CEO salary, putting high-paid CEOs in the hot seat if companies perform poorly.