Question

12. The issue of the size of executive compensation packages is explored in the text. The highest paid CEO in 2016 was Thomas Rutledge, CEO of Charter Communications, who received $98 million in executive compensation. As noted in the text, critics claim that CEOs receive excessive executive compensation packages when compared with the average worker. How would you evaluate the fairness of executive compensation pay packages?  response using 150 words or more

Answer 1

Answer:

Students might also consider how football coaches are often the highest paid individual at a university, often 500% to 5,000% more than the average faculty member. Are top coaches overpaid compared to the faculty at the university? Yes, winning at football brings in donations (but is that dependent on how much the coach is paid?), and having the football team play on national TV or in a bowl game brings free advertising and exposure of the university, but tuition has been rising rapidly over the last decade. Should the fees for television rights to the university be used to lower tuition or endow scholarships rather than increase coaches’ salaries?

Ask if such high compensation encourages cheating, fraud, doping, or whatever to give someone an edge. Is it a case of high compensation encouraging more greed?

Students like to discuss the issue of whether student-athletes should be paid. The following is a link to a blog written by the Ethics Sage.
Athletes are paid huge sums to play the game. On April 5, 2018, Colorado Rockies Charlie Blackmon inked a six-year deal worth up to $116 million. Is anyone worth that kind of money? Does anyone deserve such a long-term contract not knowing when (or if) their skills may diminish?

Extended Discussion

Instructors may want to use this occasion to inform students of the government’s $1 million executive compensation deduction limitation. Public companies are permitted to deduct up to $1 million in executive compensation but are penalized for additional amounts. The purpose is to keep in check huge pay packages. However, the loophole is the limit does not apply to performance-based compensation (i.e., bonuses, stock options).

Modification of Deduction Limit on Compensation for Public Company Executives: The 2017 Tax Act repeals the exception to the Internal Revenue Code Section 162(m) $1 million deduction limitation for commission and performance-based compensation paid to a covered employee of a publicly traded corporation. This exception currently applies to compensation payable to covered employees defined to include the chief executive officer (CEO) and the three other highest-compensated officers but excluding the chief financial officer (CFO). The 2017 Tax Act revises the definition of covered employee to include the CFO.

The 2017 Tax Act also expands the categories of public companies subject to the deduction limitation. Currently, Section 162(m) applies only to companies with a registered class of securities. Going forward, it also will apply to any company that is required to file public reports with the Securities and Exchange Commission (SEC).

The 2017 Tax Act also provides that, starting with those persons who are covered employees for 2017, once an officer becomes a covered employee, he or she remains a covered employee forever. This means that deferred compensation still would be subject to the $1 million deduction limitation even if paid in a year after the officer ceases to be CEO, CFO or one of the top-paid officers. However, compensation paid pursuant to a written binding agreement in effect on Nov. 2, 2017, that has not been materially modified thereafter is grandfathered and can continue to qualify for the performance-based compensation exemption, assuming all other Section 162(m) requirements are met.