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Google Founders Cut Salaries to $1
GeneralCern writes "MSNBC Reports that Google founders Larry Page and Sergey Brin, and CEO Eric Schmidt
all slashed their salaries to $1
last year. Since you do not have to pay FICA, Medicare, or income taxes on
the capital gains associated with stock sales, they stand to substantially decrease
their tax burden. Is this a breach of the company's "do no evil" mission
statement, or just an example of people who love their jobs so much they don't
need to be paid to go to work?" Update: 04/09 13:11 GMT by H :And don't trust the above tax lines; it all depends on how sales are done; moreover when you are worth X amount with stock, I suspect the "tax burden" of what is, relatively speaking, a salary that's small compared to networth isn't a substantial impact. Sorry folks; poor story.
Does the US have a minumum wage?
Can you get done for underpaying yourself, or does the wronged party have to complain to start legal action?
# cat
Damn, my RAM is full of llamas.
It's neither a breech of "do no evil" nor an example of their love of work... it's a legitimate way of avoiding paying tax which is standard practice for business leaders everywhere.
Total non-story; yet completely on message for the nonsense that Slashdot has decended into over the past few years. News for nerds? Barely. A barrage of pointless bollocks? Definitely.
Well, "don't be evil" does not mean "be stupid" or "be kind to IRS".
It's actually the other way around:
This way they are saving taxes which gives them the opportunity to be even more not-evil to all the people.
Except the IRS, or course.
Look,even if I pay 75% tax on 200,000 dollars I STILL MADE MONEY! 25% of X == > 0 if X !=0. They got payed less, how is that anything bad?? Sad that the posts on /. are trolls these days.....
Does that mean that in soviet Russia Slashdot posts you?
Oh,for the love of gos and country, kill me.
I mod everyone down who says "I'll get modded down for this." I hate to disappoint.
Seriously why would you need a salary when you have the credit rating associated
with owning Google?
Steve Jobs is in the same boat; he worked for the use of a private jet one year,
he doesn't need a salary - he founded Apple, Pixar and continues to run both.
I doubt his wallet is dusty dry after The Incredibles or the iPod.
Neko
Since they own close to 2/3 of the company, I'm sure they feel that what they do for the company affects their personal wealth a LOT more than a simple salary does.
To me, this tells me that they're vesting their livelihood in this company. And why shouldn't they? It seems that google adds new features to their search on a weekly, if not daily basis.
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Oh yeah, did you see MSN's "billionaire hotornot" slideshow? Don't you, as a reader, feel a little patronized there trying to choose which of the capitalist elite are the best looking? Where's Mr Gates, for that matter?
/^[A-Z0-9._%+-]+@[A-Z0-9.-]+\.[A-Z]{2,4}$/i
Coincidentally I was just reading this article from Inc. magazine last night.
t ml
http://www.inc.com/magazine/20050401/priority.h
The IRS prosecuted Menard for paying a large salary and no dividend because that arrangement results in paying less tax. See the article for details.
It could be taken that way, I think.
Certainly that's why that great champion of the "little guy", John Edwards, cut his salary and took his pay in capital gains from stock in a dummy S corporation.
He was able to cheat those suckers at the US Treasury out of $738,000 in Medicare taxes that otherwise would have been wasted on grannies in nursing homes. Let's hear it for the ethics of the Democratic Party!
-ccm
Too much Law; not enough Order.
100k a year is not rich...this really depends on region. Try living on 100k in New York City, and tell me how rich you feel. 100k is a comfortable salary, it allows you to do some cool stuff, but rich is probably 200k, with wealthy being a lot more (I usually define wealthy as, how much money does it take to become rich of the interest of your money so in this case let's use the convenient and conservative 1% so 10M - 20M)
--Joey
Jeez, I feel like I'm the only dirty capitalist left on /.
...arise from taxing "unearned" income less than "earned" income.
Technically, income from real estate rentals, dividends and capital gains in the stock market, and the like aren't "unearned," they are "passive" income and "portfolio" income, respectively. The government calls wage labor (which is what it really is, whether you're salaried or not) "earned" income to distinguish it from the other types, not to imply that said other types of income are somehow made without effort.
Trust me, it takes continuous hard work, intelligence, research, and dedication to make, maintain, and increase this so called "unearned" income.
Income from all sources should be taxed the same, to avoid giving people reason to come up with complicated schemes to move their income between categories.
First of all, you should ALWAYS strive to convert wages into passive and portfolio income. If you know what you're doing, it's much more secure than banking on the fact that you're going to still have your job tomorrow or next week. Second, have you ever considered that tax incentives are put their on purpose, in order to stimulate investment. Not all Tax Incentives for The Rich(TM) are shady or silly, and without them there might be much less motivation to consider investing. Without investors, our economy goes south very quickly.
I'm not rich, but as a Dirty Capitalist who knows a few rich people I can tell you without hesitation that it is better to be wealthy. The poor and middle class will always work for the wealthy. This doesn't change simply because you're a communist state (for example). Here, replace "poor and middle class" with "ordinary citizens" and "the wealthy" with "the people who run the government." But given the choice, I'd rather be "oppressed" by my wealthy boss than by Stalin.
In my opinion: if you're going to live in a capitalist country and you're not feeling like overthrowing the government would be a good life decision, why not play the game (and play it to win), instead of complaining about the game.
Because, if they are only getting a salary of $1 p.a., that is the only cash they'll have available to buy food with. I suppose they could eat their Google stock certificates.
Of course, the stock certificates are probably a bit tasteless, so if they need money to buy food etc., they'll need to sell some of their Google stock. Then the government has a tax go at the gains from those profits made on the stock sales.
This is the third time I'm making this point in this thread. It surprises me that a lot of Slashdotters don't seem to understand even the fundamentals of what stock are, what a salary is, and why having a very low salary and a lot of stock doesn't magically mean that (a) you have money in your pocket to live off of and (b) that stock isn't money in the bank - you have to sell your stock (which means reduce your ownership of the company) to convert the stock into cash.
The Internet's nature is peer to peer - 20050301_cs_profs.pdf
The government should tax net assets, in excess of levels typically protected under personal bankruptcy, at a rate equal to the rate of interest on the national debt, thereby eliminating other forms of taxation. Creator-owned intellectual property should be exempt.
The levels typically protected by personal bankruptcy can be approximated by the median price of housing an individual added to the median capitalization of a job in the economy. Together, these exemptions add up to between $50,000 and $100,000. Additional but smaller exemptions may be added to represent the lower levels of bankruptcy protection typically extended to children within families.
The NAT is a self-adjusting system that seeks an equilibrium between government debt levels, current tax rates and private wealth distribution, without attempting to achieve an outright balanced budget or direct intervention in the economy.
Seastead this.
Better yet, he should support conversion to a single tax on net assets at a rate equal to the national debt (since government debt vehicles are the "welfare safety net" for capital) with an exemption for subsistence assets (since the populus is effectively held on retainer as mercenaries for defense of property rights and should be paid mercenary wages for said retainer) as a clarifying step.
Alice Rosenbaum merely represents the other side of the coin to communism's central planning. Rosenbaum represents centralized wealth. The coin itself represents centralization and crushing the life out of young families and small business.
Seastead this.
The same way you patent anything else, and for the same reasons. If I am some company, like Google, and I pay people money to spend time thinking up algorithms, it's only fair that I get to use them exclusively for a while. I paid for them, after all. Otherwise, there's no motivation outside of the goodness of my heart for me to keep mathematicians on my payroll.
...
Also, what's the real difference between holding a patent on performing a chemical reaction in a particular way to increase yields and holding a patent on an algorithm to make web searches provide better results? Is chemistry somehow less real or less true just because it isn't purely intellectual? It seems to me that chemistry is as "owned in common" as philosophy or mathematics. Are you opposed to patents altogether?
Really though in both cases, no one outside of companies would have knowledge of the processes being used. The only exception would be if your employees broke NDAs.
What is it with you Americans and this dogged obsession with "companies only exist to make money"? [..]
Money is a means to an end, not the end in and of itself. Companies exist to make cars, build furniture, produce electricity, sell food, provide services, and literally 1000s of other purposes. Making money is part of that process, but it is not the actual objective.
When companies are privately owned and are run by some visionary like Henry Ford who wanted to mass produce cars, or Wozniak and Jobs who wanted to mass produce computers, yes, companies are about making products. But publicly owned companies really do have only one purpose: to maximize the return to the stockholders.
Seriously, if the shareholders of Apple decided that the best thing for Apple would be to stop making computers and become an investment bank, that's what would happen. More than a few product making companies have gone that route.
In the CEO biz, your total compensation is the way you get compared to other CEOs. It appears to be a kind of penis-measuring exercise (female CEOs aside) - after all, does a $20M CEO really work twice as hard as a $10M CEO? The usual justification for big CEO pay is "everyone else does it".
I hope the $1/year salary is their way of saying "we may be a public company, but we aren't going to play those games - we run Google because we want to solve hard problems and make money at it, not so we can wave our paychecks at Yahoo's management and laugh about how small they are."
To a Lisp hacker, XML is S-expressions in drag.
Tax AVOIDANCE is lawful and completely honorable.
.... The question arose whether the law which imposes such a tax upon them was constitutional. The opinion of the Attorney General thereon was requested by the Secretary of the Treasury. The Attorney General, in reply, gave an elaborate opinion advising the Secretary of the Treasury that no income tax could be lawfully assessed and collected upon the salaries of those officers who were in office at the time the statute imposing the tax was passed, holding on this subject the views expressed by Chief Justice Taney. His opinion is published in Volume XIII of the Opinioin of the Attorney General, at page 161. I am informed that it has been followed ever since without question by the department supervising or directing the collection of the public revenue..."
...A tax upon one's whole income is a tax upon the annual receipts from his whole property, and as such falls witin the same class as a tax upon that property, and is a direct tax, in the meaning of the Constitution....
...We have unanimously held in this case that, so far as this law operates on the receipts from municipal bonds , it cannot be sustained, because it is a tax on the powers of the States, and on their instrumentalities to borrow money, and consequently repugnant to the Constitution. ...it follows that, if the revenue from municipal bonds cannot be taxed because the source cannot be, the same rule applies to revenue from any other source not subject to the tax; and the lack of power to levy any but an apportioned tax on real and personal property equally exists as to the revenue therefrom.
...that personal property, contracts, obligations, and the like, have never been regarded by Congress as proper subjects of direct tax. The United States Constitution provides Congress the power to lay and collect taxes directly only as long as it is apportioned with regard to the census or enumeration."
Tax EVASION is illegal.
The payment of taxes is not a moral oblication, and "fair share" is not a legal term. It is used to intimidate and confuse people.
"The legal right of an individual to decrease or ALTOGETHER AVOID his/her taxes by means which the law permits cannot be doubted" Gregory v. Helvering, 293 U.S. 465
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Pollock v. Farmers Loan & Trust Co., 157 US 429 (1895)
This decision states that it is unconstitutional to impose the income tax on the interest and dividends, on the deposits of U.S citizens, in U.S. banks, because that would be a Direct Tax WITHOUT APPORTIONMENT, which is not authorized, and is, in fact, prohibited by the Constitution.
Excerpts from the decision:
"...Ordinarily, all taxes paid primarily by persons who can shift the burden upon someone else, or who are under no legal compulsion to pay them, are considered indirect taxes; but a tax upon property holders in respect of their estates, whether real or personal, or of the income yielded by such estates, and the payment of which cannot be avoided, are direct taxes..."
and;
"...Subsequently, in 1869,
and;
and;
Admitting that this act taxes the income of property irrespective of its source, still we cannot doubt that such a tax is necessarily a direct tax in the meaning of the Constitution.
In England, we do not understand that an income tax has ever been regarded as other than a diect tax. In Dowell's History of Taxation and Taxes in England, given, and an income tax is invariably classified as a direct tax..
and, even in dissent:
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Brushaber v. Union Pacific R.R. Co., 240 US 1 (1916)
The Brushaber decision determined that since the provisions of Article I of the Constitution were not repealed, they are still in full force and effect. Article I, Section 2, Clause 3, and Article I, Section 9, Clause 4, BOTH specify that Direct taxes MUST BE APPORTIONED (to the state governments for collection). The Court ruled that:
As your lawyer friend said, tax evasion is illegal. Tax avoidance, however, is not only legal it's encouraged -- hell, even the President wants you to pay as little tax as possible (if you're already rich). That's all these Google folks are doing. Fortunately, the law doesn't care if you're rich, even the poor can avoid taxes if they're careful. Back when I was in school and filed a 1040EZ I was able to cut my tax burden at least a little each year; now, with a house to kick me into itemized deductions, I milk it for all it's worth (e.g., don't throw anything away -- take it to Goodwill and let them throw it away; meanwhile, you claim the donation.
If all this should have a reason, we would be the last to know.
I think most of you are totally missing the point of these salary reductions. The Google Triumvirate are smart guys and did the math and realized that they would make more money by giving up their salaries. I'll walk you through the reasoning, since you don't seem to have figured this out:
:)
Consider the case of Larry or Sergey: each of them owns approximately 13% of Google's stock. Google has a market capitalization of approximately $52 billion, and is estimated to earn approximately $1.1 billion in profits in the 2005 fiscal year, which would give it a Price/Earnings ratio of approximately 47. This means that for every extra $1 of earnings that Google reports, the market capitalization is expected to increase by $47. 13% of $47 is $6.11. Think about it: every dollar that Larry and Sergey don't take in pay is another dollar that Google can report as earnings, making their personal stock wealth increase by $6.11. If you account for the taxes that employers have to pay on wages (like the 6.2% employer FICA contribution) this starts looking even more favorable. And then if you start looking at how long-term capital gains are taxed at a much lower rate than salary, it's even more favorable.
Do the same math and you'll see the case for Eric Schmidt reducing his pay is not quite as good as for Larry and Segey, because he only owns 5% of the company, but it still is a big win for him.
This move is obviously not about avoiding taxes. It's about making lots more money. In fact, if these guys could find out some legal way to give Google money that would increase Google's reported earnings, their net worth would increase. If Larry and Sergey were evil they could sell some of their stock in the open market, give half the proceeds to Google to report as earnings, which would make the rest of their stock go up by more than enough to offset the money that they gave to Google. They could keep doing this until their percentage ownership got low enough to make it not profitable any more. By that point they would have raked off billions in profits from this scheme. The downside at that point would include a crash in the price of Google stock due to earnings no longer being inflated, and the subsequent SEC investigation probably would be a bummer for these guys. So even if they were evil they are probably smart enough to not do this. I guess the best they can do is to just cut their salaries to $1.