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If you pay your CEO more, you pay less in taxes
More like this in our book Planet Money: A Guide to the Economic Forces That Shape Our Lives
Producer: @jackcorbe • Jack Corbett / NPR.
Editor: @alexgoldmark • Alex Goldmark/NPR.
Transcript
As the new CEO, this is your paycheck. Why why is it so much? Well, part of why CEO pay is so high is this little section of the tax code. See, before 1993 when companies were writing stuff off on their taxes, CEO pay was written off as an expense. The CEO's pay is deducted from the company's income? Like if you pay your CEO more, you pay less in taxes? Yeah. But then the Clinton administration changed the tax code to say you can only write off $1,000,000 of the CEO's pay. Better that should push CEO pay down, not up. But tier was this little sub paragraph that said if the CEO's pay were tied to their performance, then there's no limit to how much you can deduct it from your taxes. What is performance? Yeah. Like being paid with options. See, the stock option is just an option to buy a stock at a certain price. So you're the CEO. Our stock is $10 a share right now. You'll have the option no buy 10,000 shares at the price of $10 each. So if the price of our stock doubles, you'll still be able to buy those 10,000 shares of $10 each and sell them instantly for $20 each and make $100,000. Turns out when you attach CEO pay to perform