What's really going on with those deferred-compensation packages we've been reading about?
You know, the plans that supposedly give top managers a big tax break?In two words: nothing much.
This controversy has all the significance of the flap between Martha Stewart and her gardener.
The tax aspects of deferred compensation, which postpones some pay and perks until retirement, are not based on some welfare-for-the-rich section of the Internal Revenue Code.
They are merely an application of a time-honored rule: You don't pay tax on what you don't get.
What's more, the growth of these plans is not a threat to fair treatment for all employees. Many of these programs simply maintain the relative equality between management and workers. Under typical pension and profit-sharing plans, benefits are computed as a percentage of compensation.
A plan may, for example, provide a retirement benefit equal to 30 percent of an employee's average compensation. This sort of formula has been routinely approved by the Internal Revenue Service.
Yet top executives rarely receive a 30 percent pension benefit. Years of populist tinkering with the tax code have limited the dollar amount executives can receive in pension benefits.
To be sure, deferred-compensation plans are not traditional pension programs, and critics say they can thus be used by companies to limit retirement benefits exclusively to top managers. But in my experience, employers almost never disenfranchise the rank and file this way.
And unlike traditional pensions, deferred-compensation plans are quite risky. Their assets can be seized by creditors if the company goes bankrupt. Insurance is available to protect the benefits, but it is tough to obtain - and expensive. Premiums are paid by the executive. Any reimbursement by the employer is taxable.
Congress has already taken steps to rein in the excesses. This is enough regulation.
The question of how - and how much - to pay top executives is best left to the proper people: the stockholders.