Upon Review, The Washington Post Reverses Assertion, States Vast Majority of Large Company Executive Comp is Performance-Based
April 2, 2016
In a March 5 follow-up to a February 12 story, ProPublica and the Washington Post reversed their claim that non-performance-based compensation had grown nearly two times faster than performance-based compensation between 1992 and 2014 after it was pointed out that most equity compensation is considered “performance-based” under section 162(m) of the tax code. The initial study had been conducted by S&P Global Market Intelligence. It compared the executive compensation structures and amounts for the executives covered by section 162(m) of the tax code for 40 of the top 50 S&P 500 companies in 1992 and again in 2014. (The other 10 companies either were not publicly traded in in 1992 or did not exist). Section 162(m) limits the amount that a public company may deduct for compensation of the CEO and the three other most highly paid named executive officers, other than the CFO. Based on its assumption that all restricted stock was not performance-based, ProPublica and the Post asserted that average nondeductible compensation per executive in 2014 was $8.2 million out of total compensation of $12.6 million or just over 63%. After having Equilar analyze the data, in the most recent article, Allan Sloan of ProPublica reversed its stance and found that 76% of executive compensation (or around $9.6 million) is tax deductible because the vast majority is performance based, including 40.5% in performance shares.
Aside from getting the facts wrong that undergirded its first analysis, the pair did not trumpet the fact that compensation was performance-based. Its conclusion: companies have managed “make an end-run around” the $1 million limit on tax deductibility under section 162(m), even though that section allows pay for performance and the article clearly states “these companies have moved aggressively to pay for performance,” due to investor pressure, say on pay and puzzlingly, the Dodd-Frank pay for performance rule.