Twitter, Facebook and pals keep BEELLIONS from treasury with exec pay tax break – report

"Effectively the company is giving away something valuable (a stake in itself) and getting nothing in return, .."

They could have given cash (which is valuable), but this way has advantages for the employee/director.

They do get something in return, they get the services of the employee/director, which must be of value to the company or they wouldn't keep them in employment/appointment.

If the company really does value the ownership of its own shares, it can simply buy them in the open market and run accountancy methods to turn this to its advantage.

The entire point of this process is to reduce the amount of tax paid by the employee/director and the company. It has nothing to do with 'giving people a stake in the company'. If people wanted that, they'd buy shares. It's not 'ordinary workers' who are given these deals, it's directors and high level managers.

Reasonable principle

But perhaps it simply needs a cap on the maximum amount - a few million tax-free dollars/pounds should be more than enough to reward staff for their faith in the early years - beyond that they can pay taxes like the rest of us.

Bloody Hell!

The comments so far on here would almost have you believe that every company mentioned has had one of their financial staffers posting a robust defence of these systems. I'm sure that's not the case.

The point that seems to be being missed is that the're being allowed to stockpile these tax breaks, rather than a 'use it or loose it' principle.

Pretty sure that's something your average taxpayer isn't allowed to do.

But then we don't get to 'come to an arrangement' with the taxman, do we?

Not that I'm saying that any of the companies in this article would ever do such a thing. Perish the thought.

What's the problem?

Looks like a lot of shouting over a perfectly normal situation. Stock options are a kind of compensation - for the corporation it is an expense just like the employee's salary is. Your salary and benefits are deducted from the company's income before calculating taxes (I gloss over payroll taxes here). You, the employee, get taxed on salaries and benefits. Nothing special here.

To clarify, the company's expense occurs when the option gets exercised - basically the company gives a share worth $X to the employee (executive or not) who pays $Y, where Y < X, so the company incurs a net "loss", and the employee benefits. Executives get taxed, generally when they sell the share for $Z and realize the profit or $(Z-Y) - this is no different from buying a share (at exercise) and paying capital gains. Non-executive employees or contractors or consultants who get "non-qualified stock options" are taxed at exercise - $(X-Y) is taxed as regular income - and later when they sell the share - $(Z-X) is taxed as capital gains. Executives may get their "alternative minimum tax" (all the companies mentioned are in the US) triggered at exercise as well.

Bottom line: whatever the details are the income is taxed and expenses are deducted, and overall the "transactions" related to compensation are taxed - I absolutely do not see what is so special in this case. Everybody is free to scream that whatever is not taxed today should be taxed, and whatever is taxed today (the usual situation) should be taxed at a higher rate. Point is, any attempt to present this situation as fundamentally abnormal is total bulls**t, IMHO.

Disclaimer: I am not an accountant or a tax attorney.

This is not a tax break.

These are not "tax breaks" !

In the earlier years, stock options exercised after a one year holding period were considered capital gains income taxed at the 15% rate to the employee, with NO deduction for social security or medicare. THAT was a HUGE tax break for the employee.

Now that stock option income is taxed liked a cash bonus and as such, the corporation deducts the cost like a cash bonus or salary expense. That is normal business practice. No news here.