Abbott Pays More to CEO Than Taxes to US Government

Abbott Pays More to CEO Than Taxes to US Government

August 21st, 2012 // 2:06 pm @ jmpickett

In this era of increasing scrutiny given to ceo compensation, yet another report has taken a look at how some companies are making use of tax laws and how this compares with the payouts given to the c-suite. Specifically, the Institute for Policy Studies has found that 26 companies last year paid more to their CEOs than they paid in US federal taxes. And one drugmaker had the dubious distinction of making the list: Abbott Laboratories and its ceo, Miles White.

“Our nation’s tax code has become a powerful enabler of bloated CEO pay,” IPS says in discussing its study, which it calls “Executive Excess” and explores such loopholes as unlimited tax deductibility of executive pay, unlimited deferred compensation, preferential treatment of carried interest and stock option accounting double standards. The non-profit think tank also looks at ceo’s who saved the most from Bush-era tax cuts.

“Some tax rules on the books today essentially encourage corporations to compensate their executives at unconscionably higher multiples of what their average workers are paid. Other rules let executives who run major corporations routinely reduce their corporate tax bills. The fewer dollars these corporations pay in taxes, the more robust their eventual earnings and the higher the ‘performance-based’ pay for the CEOs who produce them,” ISP writes.

A few bottom-line findings: last year, 25 of the 100 highest-paid US corporate ceo’s took home more in compensation than their companies paid in federal income taxes, with seven companies making the list in both 2011 and 2010. On average, the 26 companies on the 2011 list had more than $1 billion in US pre-tax income but still received net tax benefits that averaged $163 million. The 26 CEOs on the latest list received $20.4 million in average total compensation last year, a 23 percent increase over the average in 2010 (there is a link to the complete report here).

As for Miles White, IPS calculates that he received total compensation of $19 million, a 5 percent drop. But the drugmaker – which is about to split into two different companies, one of which has a funny name (back story) – purportedly received a $586 million refund. IPS maintains this was achieved, in part, thanks to 64 subsidiaries that operate in 16 countries and are considered tax havens. In a bit of sarcasm, IPS dubs this maneuver “take 64 tax havens and call me in the morning.”

IPS writes “those millions in tax savings are likely to come in handy. After a May 2012 settlement with the Justice Department, the drugmaker must now pay out $1.6 billion for promoting unapproved uses of Depakote, an epilepsy medication. Abbott (allegedly) marketed the drug to nursing homes as a cost-effective way to control patients with dementia and downplayed (its) own research that indicated high risks for the elderly” (read here). The think tank adds that 41 percent of sales reported last year were in the US market, but US operations accounted for 7 percent of overall profits.

An Abbott spokesman, however, essentially called the report flawed. “This is a blatant misrepresentation of the facts,” he writes us, adding that the drugmaker did not receive a refund, but actually paid the US government $700 million in federal income taxes last year. The numbers in the IPS report, he argues, reflect a non-cash accounting adjustment caused by resolution of various tax matters.