Facing controversy, GM reveals CEO's total pay

[Sgent]

Source: USA Today

General Motors, the target of sniping over new CEO Mary Barra's pay, disclosed earlier than usual that her compensation this year will be $14.4 million — but just $1.6 million as a direct salary.

GM said that's 58% more than the $9.1 million total compensation in 2012 of her predecessor, Dan Akerson, who retired in January. GM hasn't yet disclosed what Akerson got in 2013, but the Associated Press reported GM said it was about the same as in 2012.

In an unusual move, GM disclosed its CEO's full compensation package before its proxy filing in April because the automaker wanted to "correct misperceptions created by comparisons that used only a portion of Barra's overall compensation."

After becoming the first big car company to put a woman in the corner office, GM chafed at published reports last week and remarks by politicians and commentators that it was underpaying her because of her gender.

Read more: http://www.usatoday.com/story/money/cars/2014/02/10/gm-ceo-barra-akerson-pay-compensation/5374869/

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Many were looking at her cash compensation (1.6m) compared to her predecessor's total compensation and thought she was significantly underpaid. This corrects the mis-understanding.

[Scuba]

1. Nice of them to tax shelter her income. Do they do the same for line workers?

[Sgent]

2. I'm not sure what you mean by tax sheltered

she gets 1.6m in cash (non-sheltered).

She gets 14M in performance based compensation (stock, options, internal options, etc.) -- compensation that is subject to change based on stock price. Much of this will not be vested (hers) for many years.

There are a variety of ways to structure it, but essentially she must pay income tax today on 14m (even if she never sees a penny of it), or income tax when she actually takes control of the money in question. If she pays the tax today, she will only have to pay capital gains tax on any value above 14m. If she delays paying the taxes, she will pay regular income taxes.

So her options are:

1) Pay approximately 5.6m to the IRS today, and hope she does her job well at which point she will get paid, and potentially risk (depending on the specific deal) paying more to the IRS than she is ever reimbursed.

2) Pay nothing today, and be taxed at 40% if and when she actually gets paid.

[Scuba]

3. Try harder, you might get it.

[Sgent]

4. Really I don't

so spell it out to me.

She has to pay taxes on 100% of income. She can do so today, but will have to pay taxes (at 40%) on income which she may never collect. Or she can pay income at the full value (maybe significantly more than 14m) when she becomes vested.

If she chooses option 1 she gets the capital gains rate for any performance which drives the value of the stock options above 14m.

I can do the same thing (if I had 14m) today by buying GM stock. If she gets any discount on the value of stock, then every GM full time employee must get the same (some companies allow employees to purchase stock at 85-90% of market value).

There are huge tax breaks and loopholes for hedge funds, but this isn't the case with GM.

[Scuba]

5. In the 39.6% marginal income tax bracket, your long-term capital gains tax rate is 20%.

So in other words, about half. Get it now?

[melm00se]

6. no, not really

I too have (some) stock options from my company. They are ISOs

For this example (and ease of math) let's say that they are granted at $10/share and they are currently worth $20/share and I have 1000 shares.

I have several choices when it comes to exercising these options:

1) Can can buy and sell in one transaction (this is a disqualifying sale). I net $10,000. I pay ordinary income tax on the difference between the grant price ($10) and the full market value at the time of exercise ($20) because I did not hold them for at least 1 year. In this example, $10 a share, or $10,000. This $10,000 is taxed at my regular income rate.

2) I can buy and hold them. In this case, I would have to pay $10,000 out of pocket to own $20,000 (current value) of stock. If I hold them, in this case, for at least 1 year (qualifying sale), I will pay, at least, the capital gains tax rate (20%) but I may also have to pay the AMT (alternative minimum tax) depending upon the size of the capital gains and other factors.

In scenario #2, I assume some risk that the stock price may go down.

If these are NQSO (Non-qualified stock options), the tax impacts are a bit more complicated (I don't have any of these):

Once the recipient exercises the stock option, they are immediately taxed as ordinary income and, if held for more than 1 year, the capital gains are taxed at the prevailing capital gains rate.

Using the above example (and assuming a tax rate of 39%), the recipient would pay, upon exercising, $3,900 in ordinary income tax and then, assuming that the stock price foes up to at $30/share AND the shares are held at least 1 year, a capital gains tax of $2,000 would also be paid (more if held for less than 1 year).

Executive pay announcements like this can be deceiving. The true compensation for the reported year could be more (if the company does well and the stock price appreciates) or less (if the stock price stays constant and/or depreciates in value).

[Scuba]

8. If you don't get that the "prevailing capital gains" rate of 20% is less than 39% I can't help you.

[melm00se]

9. If you don't get that there are multiple tax scenarios and yours is just one I can't help you

[VWolf]

7. Phew! Nice to know

that Barra's pay is just as obscene as Akerson's.

I was beginning to worry.

[freebrew]

10. How nice for her...

and all the new hires get to start at half pay compared to a decade ago.

Last info I had from a former GM worker was starting pay at the new Wentzville plant : $9.00

I guess they'll have to raise it a bit if the min. wage goes to $10.10(big IF).