Companies Use IRS to Raise Bonuses With Earnings Goals

[xchrom]

http://www.bloomberg.com/news/2013-09-13/six-cents-help-net-bonus-millions-as-ceos-get-lower-goals.html

After Exelon Corp. (EXC) earned less than top executives needed to reach their annual cash bonus target last year, the company's directors provided a way to help bridge the gap: nonexistent profits.

The board tacked on 6 cents a share -- equal to $85 million -- that the Chicago-based power company never made, augmenting earnings solely for the purpose of calculating bonuses. Exelon said that it would have earned the sum except for a regulatory setback on electricity rates and that the pennies helped thousands of employees avoid smaller payouts.

The 6 cents helped executives receive their fourth above-target bonus in five years as the company’s operating profits and its market value fell by more than half. Amid the slide, the board awarded more than $20 million in cash bonuses to top managers as tax-deductible “performance-based pay.”

Exelon and dozens of other corporations demonstrate how such tax-advantaged bonuses -- which cost the U.S Treasury $3.5 billion a year, according to the congressional Joint Committee on Taxation -- can reward even subpar shareholder returns. Chief executive officers at 63 companies in the Standard & Poor’s 500 Index (SPX) got cash incentive-pay increases last year after their share returns underperformed the index’s, according to data compiled by Bloomberg.

[surrealAmerican]

1. There's a word for this sort of scheme ...

... that they avoided mentioning in the article. That word is "fraud", and yes, it is illegal.

[kentuck]

3. Feds should file criminal charges

And make an example.

[90-percent]

2. Fraud is still illegal?

I thought the oligarch's got the law changed to fraud being perfectly legal if the perpetrator is a corporate executive with an annual salary of $15 million or more.

Fraud is only illegal for the "little people"

-90% Jimmy

<snark>

when do i get a du snark smilie?

[dickthegrouch]

4. It's time to tie all exec pay and bonus to shares

Which they are not allowed to sell until more than a year after the shares are conferred.

Each layer of executives from Director up should have a different %-age of pay that they receive as their own company shares. I think it should be tied to the difference between their least-well paid reporting staff member and themselves. If the least well paid get $20,000 and the director gets $80,000, 1 - 80/20 = 75% of director compensation in shares seems right. This should continue all the way up to the top with ever increasing amounts of pay in actual performance-based share allocations.

I used to work for a company that required me to have a certain amount of my capital in their shares as a requirement of being a Director. I lost a lot of my money in that fiasco. It taught me lots of things, but principally that I don't want, ever, to be in that position again.

And, yes I know increasing proportions of savings in a single vehicle are extremely dangerous (think Enron), but half the point is to make sure that everyone is playing on a level field as to the profitability of the company and its real prospects. Too big to fail should apply to everyone not just the top echelon.