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Study on CEO Pay Disputed By Some Companies Identified in Report

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Sept. 2 (Bloomberg) -- Some companies highlighted in a report that concluded well-paid U.S. executives earned more than their corporations paid in federal income tax are disputing the findings, maintaining the study distorts the U.S. corporate tax burden.

The report, released Aug. 31 by the Institute for Policy Studies, found that 25 of the most highly compensated chief executive officers in the U.S. received more in compensation than the companies’ federal income tax expenses as reported in 2010 public filings.

CEO pay and the amount of taxes paid by corporations are sensitive topics. The institute, a non-profit Washington group whose studies have been critical of corporations, said its findings underscore the need for an overhaul of the U.S. tax code that would reduce the number of tax strategies available to corporations.

EBay Inc., one of the companies identified in the study, was listed as paying CEO John J. Donahoe $12.4 million while the company received a $131 million federal tax benefit. The San Jose, California-based online trading company said the report doesn’t take into account the full menu of taxes it pays.

A tax benefit is an accounting measure that can include refunds, as well as multi-year activity such as tax deferral that can affect tax payments in a given year. The tax expense reported in annual financial statements can differ from actual tax payments, which are confidential, for a variety of reasons.

EBay’s Taxes

“EBay Inc. paid $646 million in taxes in 2010 globally, the majority in the U.S.,” the company said in a statement yesterday. “IPS has misrepresented our financial reports, and made no attempt to verify the facts with us before publishing inaccurate information.”

The companies’ response prompted the institute to issue a statement today maintaining that it “did not investigate or make any claims about the taxes corporations paid to state, local, or foreign governments.” The study, it said, was focused on U.S. corporate taxes because “our intent was to call into question whether corporations are paying their fair share toward the cost of government.”

Chuck Collins, one of the study’s authors, said the group has examined executive pay in relation to a variety of topics including other occupations, employee layoffs and bank bailouts over the past 18 years. Adverse reaction to this year’s report has been unusually strong, he said.

Collins said in a telephone interview yesterday that he thinks that reaction occurred because “this is the first time we’ve looked at the intersection of CEO pay and corporate taxation. It’s hit a nerve.”

‘Lot at Stake’

“My sense is that the companies understand that there’s a lot at stake,” he said. “The public is concerned about aggressive tax avoidance at a time we’re trying to reduce the deficit.”

The institute reported that Verizon Communications Inc. Chairman Ivan Seidenberg, who was CEO during the period covered by the study, was paid $18.1 million while the company received a $705 million tax benefit. Seidenberg retired as CEO on August 1.

New York-based Verizon acknowledged the negative tax liability. The company, in a statement, said in 2010 “we also incurred $2.9 billion in federal tax liabilities. These are taxes that must be paid, but at a later date.”

In its statement, the institute said that “we have been clear in our report that we are focused on the current taxes as the best approximation of the net result of what corporations actually paid in a given year.” It noted that “some forms of deferred taxes can be put off indefinitely.”

‘Political Agenda’

Verizon spokesman Robert Varettoni said in a telephone interview yesterday that the institute’s report is similar to a study released in May by Citizens for Tax Justice, a labor-funded research group based in Washington. That study identified 11 U.S. corporations that reported $62 billion in U.S. profits while paying a negative 3.6 percent tax rate in 2010.

“I think there’s a political agenda to both of those studies,” Varettoni said. “They’re trying to set a false tone in the debate on corporate tax reform.”

Another company identified in the institute’s study, Chicago-based Boeing Co., was listed as paying CEO Jim McNerney $13.8 million in 2010 while paying $13 million in corporate income tax.

Boeing spokesman Charles Bickers said in a statement that the aircraft maker “adheres to the tax rules” and that the study is “misleading.” Boeing paid $360 million in 2010 income tax, including federal, state, international and local taxes and “a significant amount of that was federal,” Bickers said.

Neither Verizon nor EBay disclosed how much they paid in U.S. corporate income tax in 2010. Verizon said it paid “$430 million in state and federal taxes, net of refunds in 2010.”

Corporate Taxes

Verizon spokesman Varettoni said he couldn’t say how much of that total represented federal income tax because the company doesn’t disclose it that way.

“We combine the federal and the state,” he said.

In its statement, EBay said “the company does not break down cash paid for income taxes by jurisdiction.”

The lack of detailed information about taxes paid by U.S. companies underscores the need for requirements to break out such information, the institute said.

“There is obviously an enormous public appetite for more and clearer information on what corporations actually pay in taxes each year,” according to the institute’s statement.

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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