RiskMetrics blasts companies paying compensation taxes - 24 Nov 2008

The Wall Street Journal reports
(subscription required) that RiskMetrics Group is advising investors to
withhold votes from corporate directors who approve tax "gross-ups" to
cover taxes on forms of executive compensation like perks and golden
parachutes offered in the case of a merger or buyout.

I've
always thought that the whole tax gross-up thing was ridiculous . Do
people earning 8-digit pay packages really need help paying their
taxes? Worse, the tax gross-ups could also make it harder to figure out
the total compensation given the absurd legalese that is found in proxy
statements. But was it really that big of a deal? Or was it just a
complication that really didn't result in any additional shareholder
cash being wasted? A company that pays $6.5 million plus $3.5 million
in tax gross-ups is no worse than one that pays $10 million in cash.

But
according to RiskMetrics, tax gross-ups are indicative of an "anything
goes" corporate culture: S&P 500 firms offering tax-gross ups to
their executives had golden parachutes 61% bigger than those that
didn't -- without including the value of the gross-up!

The one
nice thing that has come out of the market mayhem is a renewed interest
in corporate governance. Tales of executive looting are making the
front-page of newspapers, and Congress has taken interest. Whether
anything will come of it depends on the willingness of the large
institutional investors that control the voting rights to most of the
stock in this country to put their foot down.