Like most Americans, rank-and-file employees of Home Depot Inc. must
reach into their own pockets to pay taxes, the WALL STREET JOURNAL begins on
Thursday page ones. Excerpts follow (full paid-restricted article
But not Robert Nardelli, the home-improvement retailer's chief executive.
Under his employment contract, Home Depot picks up a big chunk of his federal
and state income taxes. Specifically, the company is obliged to reimburse its
CEO for taxes due on a slew of perks, including a high-end luxury car, his family's
travel on Home Depot jets and forgiveness of a $10 million loan. Last year,
these payments amounted to at least $3.3 million, topping Mr. Nardelli's $2
million base salary.
Amid soaring CEO compensation, a number of companies are paying extra sums
to cover executives' personal tax bills. Many companies are paying taxes due
on core elements of executive pay, such as stock grants, signing bonuses and
severance packages. Others are reimbursing taxes on corporate perquisites, which
are treated as income by the Internal Revenue Service. They run the gamut from
personal travel aboard corporate jets to country-club memberships and shopping
"This smacks of Leona Helmsley-like treatment, that only little people pay
taxes," says Patrick McGurn, an executive vice president of Institutional
Shareholder Services Inc., an influential adviser to big investors that often
critiques companies' corporate-governance practices. For these top executives,
he says, companies "are removing taxes from the list of inevitable life experiences,
leaving only death."
Companies often don't disclose these perks, the Journal reports -- they often
bury them in financial filings. According to a study cited by the paper, 52% of
companies disclosed they paid gross-ups to one or more top executives last year,
up from 38% in 2000.
Some examples of companies paying top executives' taxes:
Coca-Cola Bottling Co. Chief Executive J. Frank Harrison
III has received more than $4 million since 2000 to cover taxes on a big restricted-stock
grant. That's more than his total salary over the same period.
Federated Department Stores Inc., which owns Macy's and
Bloomingdale's, compensates executives for taxes due on big merchandise discounts
at company stories. The corporation said in a filing that the discounts and
related tax gross-ups totaled about $300,000 for its top executives in 2004.
North Fork Bancorp., in what appears to be one of the richest
gross-up plans around, could pay more than $125 million in tax reimbursements
to top executives if the Long Island-based bank is ever acquired.
The bottom line, the Journal says: "Tax gross-ups have proliferated for
one major reason, many compensation experts say: They allow companies to quietly
pay more to top managers at a time when executive compensation is increasingly
controversial. The current rules don't require companies to disclose tax reimbursements
separately in pay tables given to shareholders."