Grassley Pushes For Change To Executive Pay Tax Laws

Senate Finance Chairman Chuck Grassley said on Wednesday that he will continue to examine whether the tax policy that appears to encourage backdating needs to be changed.

Grassley remarked that the practice of backdating stock options at some of the nation's largest companies "threatens American values of equal opportunity for economic advancement and fairness."

"It is behaviour that, to put it bluntly, is disgusting and repulsive," Grassley said. "It is behaviour that ignores the concept of an 'honest day's work for an honest day's pay' and replaces it with a phrase that we hear all too often today, "I'm going to get mine."

Grassley convened a hearing to get imput from the Justice Department, the Securities and Exchange Commission and the Internal Revenue Service about how they are responding to the issue. The hearing featured testimony from experts on whether the federal tax laws on executive compensation are working as intended -- to discourage excessive executive compensation.

The law basically says that for publically traded corporations, all executive compensation above $1 million cannot be deducted unless it is performance based. Experts say that many companies have stretched the rules to classify compensation as preformanced based.

"It was well-intentioned," said Grassley of the 1993 law. "But it really hasn't worked at all. Companies have found it easy to get around the law. It has more holes than Swiss cheese."

IRS Commissioner Mark W. Everson suggested that the IRS could be more effective in helping to stock stock option backdating if certain privacy laws were loosened to allow taxpayer data to be shared with the Securities and Exchange Commission and the Justice Department.