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After the financial crisis, people were demanding that CEO pay be tied to company performance. So instead of large salaries, CEOs were given large equity positi

After the financial crisis, people were demanding that CEO pay be tied to company performance. So instead of large salaries, CEOs were given large equity positions ( options ). The politicians/people thought this was a punishment, but it was actually a great boon for CEOs. Not only do they pay 20% on capital gains instead of nearly 40% on salary, they can boost stock prices artificially over the short term by taking out loans ( nearly 0% for the last 10 years ) and then buy stocks back. This is also a favorite hedge fund raid. Hedge funds open up large positions on companies. Demand board seats. Get board seats and then get the execs to sell assets, layoff employees and take out loans to buyback shares. Get out with a nice profit. And the company is left with a huge debt loan that'll crush them once interest rates rise.

closeparen 9y ago
What? You pay income tax on the value of your options, and also capital gains tax on the appreciation in their value after vesting. That’s only a tax advantage if you get options in a worthless company that later becomes valuable. The luckier startup employees are in that boat, not Fortune 500 CEOs. For public companies, you can reap this advantage yourself by buying and holding their stock using your cash compensation.
- zombieprocesses 9y ago
  > You pay income tax on the value of your options, and also capital gains tax on the appreciation in their value after vesting. Yes. That was my point. > That’s only a tax advantage if you get options in a worthless company that later becomes valuable. What? Since 2010, most large companies had their stock prices double, triple or even more. > For public companies, you can reap this advantage yourself by buying and holding their stock using your cash compensation. Except you don't get all your salary upfront.
  - 111_1_111 9y ago
    > Yes. That was my point. No, it wasn't. This is what you said: > Not only do they pay 20% on capital gains instead of nearly 40% on salary That statement is patently false.

closeparen 9y ago

What? You pay income tax on the value of your options, and also capital gains tax on the appreciation in their value after vesting. That’s only a tax advantage if you get options in a worthless company that later becomes valuable. The luckier startup employees are in that boat, not Fortune 500 CEOs. For public companies, you can reap this advantage yourself by buying and holding their stock using your cash compensation.

zombieprocesses 9y ago
> You pay income tax on the value of your options, and also capital gains tax on the appreciation in their value after vesting. Yes. That was my point. > That’s only a tax advantage if you get options in a worthless company that later becomes valuable. What? Since 2010, most large companies had their stock prices double, triple or even more. > For public companies, you can reap this advantage yourself by buying and holding their stock using your cash compensation. Except you don't get all your salary upfront.
- 111_1_111 9y ago
  > Yes. That was my point. No, it wasn't. This is what you said: > Not only do they pay 20% on capital gains instead of nearly 40% on salary That statement is patently false.