Real World MIA in Elections Rhetoric

The video below comes from the article Real World MIA in Elections Rhetoric.

This interview is a follow on to the interview in the previous post The Trouble with Billionaires.

One example Linda McQuaig uses to demonstrate the shift in wealth to the wealthy was not just a natural occurrence but came from deliberate policy changes is the change in regulations governing Stock options. I wish she had been more specific about exactly what that change was.

I did find the paper The Taxation of Executive Compensation by Brian J. Hall, Jeffrey B. Liebman. The paper is 44 pages long and so far I have only skimmed it. In the summary, I found:

First, there is little evidence that tax [rate] changes have played a major role in the dramatic explosion in executive stock option pay since 1980.

Second, we find evidence that the million dollar rule (which limited the corporate deductibility of non-performance-related executive compensation to $1 million) led firms to adjust the composition of their pay away from salary and toward “performance related pay,” although our estimates suggest that substitution was minor.

I added the clarification that the tax rate changes are what the authors mean.

Later, in the body of the paper, I found

Unlike cash compensation, which is expensed against earnings, there is generally no expense recognition (at grant, exercise, or sale) for options, whether they be NQSOs or ISOs. As a result, compensation consultants often point out that stock options are the only form of compensation that are free in an accounting sense, but still deductible for tax purposes.

You or I will have to read the paper more carefully to see if this is the missing explanation for the large increase of the use of stock options.

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