Friday, January 9, 2009

Asymmetrical executive compensation is at the root of many of today's problems.

Executive compensation is asymmetrical. A large portion of that asymmetry comes from executive stock options. That asymmetry is further amplified by the Canadian government, who have arbitrarily and unfairly decided to tax employee stock option gains at half the rate of income? Why?

The value of this tax break is immense and is being hoarded by the upper 1% of our society. Apart from being grossly unfair, it is without justification or social purpose.

Capital gains are taxed at half the rate of income, because there IS capital at risk. However, gains from employee stock options entail ZERO capital at risk. Employee stock option gains are merely a form of income from employment, and should be fully taxed as such. This tax benefit for the uber wealthy needs to be closed in the upcoming budget. Failure to close this loophole will mean that government has simply been inveigled into a compensation scheme that has proven itself to be adverse to society.

Do you really think there would have been a sub-prime mortgage market if it weren’t for the way people were/are compensated? Maybe you should ask the CEO’s of Bear Stearns, Lehman Brothers, Citibank and Merrill Lynch. Here in Canada you might want to ask the CEO of Manulife why he decided to stop hedging his firm’s open ended exposure from synthetic investment products like Income Plus, if not to artificially drive profits and artificially inflate Manulife’s stock price......and his stock option gains.....taxed at half the rate of income from employment.

Sheesh, could it be more obvious? Why is the Canadian government providing tax incentives that encourage the latest and greatest abuses from the private sector?

Yesterday, back dating stock options. Today, sub prime. Tomorrow, gawd knows what?

1 comment:

Dr Mike said...

Again , who is benefitting here---the same big cheeses that are on Flaherty`s advisory panels to save the country from past Conservative mismanagement.

These are the same cheese-heads who demanded the dumping of income trusts by taxing them out of existence.

Where is the level playing field in the case of stock options--this field actually has only one side , that of the cheese people.

Dr Mike Popovich.