Executive Compensation Tools Under Scrutiny

By Agence France-Presse Tax experts urged the U.S. Congress on April 8 to ban certain executive compensation tools, such as those that had been used at Houston-based Enron Corp., particularly one that allows executives to defer stock gains in order to avoid tax payments. In a hearing before the Senate Finance Committee, the bipartisan Joint Committee on Taxation said the use of programs such as Enron's deferral of stock options gains and restricted stock programs "should not be allowed." The congressional tax experts made a series of recommendations to lawmakers, who are due to draw up new legislation that is likely to reform some aspects of executive compensation after uncovering how Enron executives drew millions of dollars in such plans as the company spiraled into bankruptcy. Enron's compensation practices also have drawn interest from the U.S. Treasury Department. Assistant Treasury Secretary for Tax Policy Pamela Olsen signaled at the hearing that the government will soon be making some new recommendations in this area. The use of so-called "non-qualified deferred compensation" by top Enron officers drew particular scrutiny from lawmakers on the panel. Non-qualified deferred compensation essentially refers to compensation that is deferred other than through a tax-qualified retirement plan or similar arrangement. Over $150 million was deferred in compensation by the 200 highest-compensated Enron employees for the years 1998-2001. In the weeks prior to Enron's bankruptcy filing, early distributions totaling more than $53 million were made to certain participants of Enron's nonqualified deferred compensation plans, according to research by the Joint Taxation Committee. Copyright Agence France-Presse, 2003