Slashdot Mirror
Google Execs Happy With $1 Salaries
DarkClown writes "ZDNet is on the one hand reporting that Google execs will keep their $1 salaries again this year, and on the other hand is reporting that the executives cashed in more than $160 million worth of stock last month." From the stock article: "Since the search giant went public in August 2004, Brin has sold about 6.5 million shares at a market value of $1.68 billion. Page has sold about 5.8 million shares at a market value of $1.4 billion, according to calculations from Thomson Financial. Chief Executive Eric Schmidt, who was brought in to run the company before it went public, has sold more than 2.1 million shares, worth more than $502 million." They could be getting a multi-million dollar salary *and* the stock money. Good faith efforts go a long way in my book.
I worked for a consultancy where the CEOs capped their salaries at $55,000. The place I work now has a similar deal going.
Of course, all the CEOs are wealthy from stock sales.
IANASME (I am not a stock market expert) so maybe someone can explain this too me.
The SEC has mandated stock option expensing methods because previously too many companies made executives' pay pretty much disappear - instead of paying them, they gave them options. Now that they are expensed, what is the difference? It just seems to me as if the executives are getting paid billions of dollars and Google's bottom line should reflect that with the new expensing procedures- whether it it direct compensation or stock options.
Thanks,
Jack
They pay tax on those stock sales
Minimum wage laws refer to people making an hourly wage, "non-management" workers.
500GB of disk, 5TB of transfer, $5.95/mo
Steve stole the idea it isn't his either.......
Four months after Ford Chairman Henry Ford II fired Iacocca as president of Ford in July 1978, he took up with Chrysler and promptly figured out the automaker was in big trouble. He fired executives, bargained with the United Auto Workers union to lower salaries and benefits for hourly workers, lowered his own salary to a dollar a year, and secured loans from the federal government to bail out the company.
Considering that the Google executives have billions of dollars in their names, they exceed the asset limits for the food stamps program.
my blog
>
> But not income tax, which is what the parent mentioned. They probably pay the (much lower) long-term captial gains tax.
In Kalifornistan, all income - salary, interest, dividends, and both short-term and long-term capital gains - is taxed by the State as well as the Federal government. Every dollar earned over $40000 is taxed at 9.3%. (Every buck over $1M is taxed at 10.3% starting January 1, 2006.)
So if you have, say, a $400M capital gain on a $500M hunk of stock, the Feds take $60M (to build a quarter of a bridge to nowhere in Alaska, or to blow up some Arabs), and Ahnold takes an extra $37M in state taxes (for the pensions purchased by the various government employees union' under the previous administration in exchange for campaign donations.)
And since the AMT threshold is measured in thousands of dollars, no, you can't deduct the $37M in state taxes from your Federal return, because you're so far beyond the AMT threshold that your accountant can't even see the AMT threshold without very long baseline interferometry.
Ask yourself what the various levels of government have done to earn a quarter of the wealth spawned by Google.
This isn't a right-vs-left issue. Wouldn't most Democrats be a little happier if the government wasn't able to take a huge chunk of your wealth in order to buy bombs to drop on brown people? And wouldn't most Republicans be a little happier of the government didn't take the rest of your money to spend on government employees' unions and welfare queens?
Sadly this is not the way it has worked in practice.
Executives are granted options that are already in the money on issue. Thus, they get substantial income even if the stock does nothing. If the stock goes down these options are regularly repriced with lower exercise prices which effectively removes all the downside risk.
Furthermore, options are a poor tool. The link should be between the executives performance and outcomes, not the stock price. The stock price will move for many reasons unrelated to the executive's performance - for example, stocks go up in booms and yet you would be hard pressed to argue that any executive was responsible for the economic boom. Thus, at a minimum, they should only be paid when their stock outperforms other similar stocks (or even just the whole market index). Instead, you see executives being rewarded heavily for good luck. If the market is going up, only the most grossly incompetent executive could make a stock go down. A mere seat-warmer is still likely to get significant returns.
The basic economics is that poorly designed incentive schemes, of which option grants are an example, encourage gaming of the system and not proper results or rewards.
From TA, they sold 6 millions shares, but they still own 30 millions. so they still have an interest in Doing Good (stock-price wise)
Me culpa.
Minor correction: A stock option is properly the option to buy or sell a given number of shares on a given date for a given price. See Wikipedia for a more thorough discussion, but in short what a stock option as a means of compensation entails is this: The company gives you an option to buy N shares for X dollars each on D date. If the stock price on the open market is greater than X dollars per share (call it Y), then you can exercise your option by spending N * X dollars to buy N shares of stock. Actually, you can do that even if Y < X, but that would be equivalent to buying a gallon of gas for $2.50 when it costs $1.50 across the street. Once you buy the N shares of stock, you can (as most people do) sell them back into the market for their going rate, Y dollars each. So your profit from fully exercising your stock option is N * (Y - X).
If you hear someone say their stock options are "under water," it means that Y < X and the options are worthless. Also, note that most stock options given as compensation for work are not freely transferable, whereas stock options purchased on the options market can be sold back into the market. That's most of what options traders do.
But the other people pointing out that this story is not about stock options but rather about actual stock shares are probably correct, at least as far as the company's founders go. They already own shares of stock and are just selling the shares off into the market for cash. Bill Gates and Steve Jobs both do this from time to time with their respective companies. How it works is you form a company, call it Acme. You incorporate it as Acme Inc. and, in the articles of incorporation, grant yourself 1 million shares of common stock. Then you later make an initial public offering and the Acme Inc. board authorizes the issue of 1 million more shares of common stock, which get sold through the stock market (probably covered by an underwriter or something initially and sold from there). So now you own 1 million shares and other people own 1 million shares. All you have to do to get rich is sell your shares out into the market.
Since Bush's tax cuts, Capital Gains tax on any stocks held over 1 year is a paltry 15%.
I make next to nothing, and I pay more income tax than that.
It's not what you know, or even who you know- It's how many people recognize your damn
Exercising options are not the same as a long term capital gains tax. When you exercise an option, you are taxed at the difference between the market price and the strike price (the price the option was granted at). This is treated like normal income. These shares were granted at $0 (according to SEC filings).
So they are paying the maximum state and federal taxes (35% fed, 9.3% state).
Nowadays, that depends on whether it's long-term capital gains tax or short-term capital gains tax. Long-term capital gains are usually taxed at a much lower rate.
From the bottom of that same coloumn:
"Dollar amounts are as of 31-Dec-04 and compensation values are for the last fiscal year ending on that date. "Pay" is salary, bonuses, etc. "Exercised" is the value of options exercised during the fiscal year."
So the claim of their 2005 salary being 1$, and this years salary being 1$ could be entirely true, regardless of what they made in 2004.
Capital gains tax rates are higher than income tax.
7 ,00.html):
And you're higher than a kite!
From the IRS (http://www.irs.gov/taxtopics/tc409.html):
"You may have to report capital gains and losses on Form 1040, Schedule D (PDF) . If you have a net capital gain, that gain may be taxed at a lower tax rate. The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. The highest tax rate on a net capital gain is generally 15% (or 5%, if it would otherwise be taxed at 15% or less). There are 3 exceptions:
The taxable part of a gain from qualified small business stock is taxed at a maximum 28% rate.
Net capital gain from selling collectibles such as coins or art is taxed at a maximum 28% rate.
The part of any net capital gain from selling Section 1250 real property that is due to recapture of straight-line depreciation is taxed at a maximum 25% rate. "
The important part is that your long term capital gains are pegged based on your tax bracket. If you would normally pay more than 15% in taxes, your capital gains are 15%. If you would pay less, you pay only 5%. Short term capital gains are just figured as normal income and taxed as below.
And here are the tax schedules (http://www.irs.gov/formspubs/article/0,,id=13351
"If taxable income is over-- But not over-- The tax is:
$0 $7,300 10% of the amount over $0
$7,300 $29,700 $730 plus 15% of the amount over 7,300
$29,700 $71,950 $4,090.00 plus 25% of the amount over 29,700
$71,950 $150,150 $14,652.50 plus 28% of the amount over 71,950
$150,150 $326,450 $36,548.50 plus 33% of the amount over 150,150
$326,450 no limit $94,727.50 plus 35% of the amount over 326,450 "
So, if you earn $1 billion from the sale of stock held over one year, with only $1 dollar in actual income, you pay ($1 billion * 5%) $50 million (since the tax rate on $1 is 10%, which is less than 15%). If, however, you earned a $1 million salary, then cashed out $1 billion in stock, you'd pay ($1 billion * 15% = $150 million) + ($94,727.50 + (1 million - 326,450)*35% = $330,470) = $150,330,470.
By paying themselves $1 per year, they saved themselves over $100 million. Yeah, it was completely altruistic. Altruistic like a fox!
God invented whiskey so the Irish would not rule the world.
Yes, there's actually a phrase for it.
The Google founders don't just have f*ck you money, they have f*ck everybody money.
...Capital Gains tax on any stocks held over 1 year is a paltry 15%.
If you hang on to if for less than a year, you tack the amount to your income and pay that rate. Holding it for 12 months helps, as that 'income' gets taxed at a fixed rate rather than what you make at a normal income. But no worries on the tax front. Once you break a certain threshold where you get to play with the glorious ATM (alternative minimum tax) codes, which these guys certainly hit... No changes there at all...
+++ UGUCAUCGUAUUUCU
The 15% tax rate is NOT on stock sales in general. Capital gains are taxed at the normal rates. The only thing that has changed is that any STOCK DIVIDEND income ONLY is taxed at 15%. Google shares don't pay any dividends, so this is a non-issue.
If there is one thing I've learned, it's that geeks make horrible investors.
... well, I'd still probably do it. :)
I've seen a number of posts on here complaining about the Google share price being outrageous. I'd be interested in hearing what they would have to say about Berkshire Hathaway (BRK.A) at an astonishing $89,600 per share. I suppose you think they are overrated too?
It's all in the market cap. While it might seem that might post is a thinly-veiled insult to the Slashdot crowd, I actually intend for it to be encouragement for most of you to go out and take a few stock market classes or read up on investopedia or wikipedia.
Here's your free lesson:
Market cap of Google is $130.94 billion. Market cap of Apple is $64.30 billion. Berkshire-Hathaway is $112.99 billion. IBM is $126.93 billion. Microsoft is a whopping $279.74 billion. Yahoo is $49.47 billion.
(Current as of EOD 1-24-06)
Based on this, a geek can deduce their interpretation of which company is "worth" more and thus determine which stocks to buy and which ones to "short". (For more on how to short a stock, use your favorite search engine or check with your brokerage)
Assets and Liabilities also play a huge part in valuation. A company can have a high market cap but have a crappy current ratio or debt to equity ratio. Personally I think Google is slightly overvalued, but here's the list that I have with actual market cap and where I think each of the above companies market caps *should* be.
TICK-ACTUAL-WORTH
GOOG-131-110
AAPL-64-80
BRKA-113-130
IBM-127-100
MSFT-279-230
YHOO-50-80
It's up to you how you determine what you currently value a company at, but I think valuing based off of market cap is a good way to get started. For example, Yahoo at one point had a paltry market cap of something like 7 billion after the dot-com crash of 2001-2002. Astute investors (like myself and others) invested in these companies that we suspected would rebound. Several of us make off very well because of it. And it didn't take much more than time for us to learn.
Of course, I gradually taught myself this over the course of about 6 months. I do not regret using the time between graduation and first official full-time job to do so. What a risky time to be playing with my money, though. If I had to do it over again
Oh, and I lost money too. But if you invest in safely and stay away from the lure of pink sheets stocks, you'll do fine.
Hey Professor Accountant, its capital gains, not dividend income!
This is clearly wrong, as stock sales and dividends are two totally separate things. The sale of stock generates either ordinary or capital gains income (depending on how long you hold the stock). Dividends reflect the stockholders share of the profit in ongoing operations, and you don't surrender your stock to get them.
When people talk about 'tax cuts for the rich', the dividend income tax change was the biggie.
Yes, well, people say lots of foolish things. Taxes on dividends are "double taxation", as profits have been taxed at the corporate level once, and then they get taxed again when they're dispersed to the shareholders. The most reasonable thing to do would to eliminate the dividend tax altogether, since it really doesn't increase tax receipts so much as force companies to distribute profits in other ways. Lots of (most?) companies either don't have dividends or have insignificant dividends for that reason. Typically you wouldn't buy a stock that disburses dividends unless it's in your IRA account where you won't pay taxes on it until you retire.
You could make the argument a tax on dividends makes sense because corporations are able to avoid corporate taxes through offset pricing schemes, but the real fix there is to fix the corporate tax system, not add another layer of taxes. Of course, if we did that the super rich would actually pay more in taxes, so you won't see much support for it in Congress.
In the case of The Google Boys, it's the difference between paying a base 35% on $1.4Bn in Income, or paying a base 15% on $1.4Bn. That's over $200 million dollars less in tax
If I'm reading yahoo correctly, Google doesn't even have a dividend, so the dividend tax rate is meaningless to the founders. Since Google just went public recently they're probably paying ordinary income taxes on most of the stock they've sold.
... is that you might well think that market speculation is not PRODUCTIVE per se, since it doesn't directly output a good. But it does not mean there is no use for the community.
Indeed, the main utility of a market is to be found from an INVESTMENT point of view. Where do you think the money goes when you buy a share ? To the company, which can invest in whatever it needs. Sure, it also boosts the value of shares/stock options, but that's a side effect. The company has been financed.
However, I have to disagree with the parent as well; most of your reasoning is correct, but you do not acknowledge that some actions can boost the share value (often not for long) on false basis, therefore not improving the company itself. And unfortunately this tends to become quite common when executives have such a stake in company shares.
Then what I fail to understand is, despite its length, why on earth your comment got modded "Insightful".
Let me explain something to you: Google didn't have the choice of caving-in to censorship, or standing-up for the Chinese people. Google had the choice of caving-in to censorship, or being kicked out of China and having all of their IP addresses blocked by the Chinese government.
As mighty as Google might look from our (peon) perspective, they are powerless in the face of any national government.
Censorship is telling a man he can't have a steak just because a baby can't chew it. --Mark Twain
"Fuck You" money is the amount of money it would take for you to never need to take another job again. Or alternately, Enough money so that if you needed to, you could tell your boss, 'Fuck you' and still be well off. I would also think it includes a +/- based on personal desire.
That said, Fuck You Money is a function of a person's location, cost of living, current stock market trends, personal spending habits and personal desire. A person would have to calculate their own value for it.
Although, it would be nice to have a fairly solid equation for it and a quick place to access some of the constants.
Star Pirates