Why Should Firms Pay Execs' Huge Tax Bills?

Executive compensation issues keep popping up like a kid's "hammer the allligator" game. It was golden parachutes, wine bills, backdating stock options and loans for margin calls.

Here's the latest one -- paying off those huge tax bills for executives floating away on golden parachutes.
RiskMetrics Group will soon start checking into such practices when it advises on proxy voting. It will recommend withholding votes from company directors who approve so-called "gross ups" to take care of taxes that executives must pay when a merger sends them out the door with a "golden parachute."

Capital One Financial Corp., for example, paid $107.6 million in taxes for John Kanas, for head of North Fork Bancorp. which CapOne bought in 2006.

RiskMetrics believes that about two thirs od companies in the S&P 500 offer some form of "gross up." So far this year the activist American Federation of State, County, and Municipal Employees (AFSCME) union introduced six shareholders proposals calling for bans on gross ups. On the list were Nabors Industries Inc. and Textron. All were defeated.

Given the pain of today's financial crisis and board room uncertainty, it's high time shareholders took a good look at gross ups.