Libertyville-based Motorola Mobility paid no federal income taxes in 2011 even as company CEO Sanjay K. Jha received $47.2 million in annual executive compensation.
That is the finding of a report the Institute for Policy Studies in Washington, D.C. released yesterday that looks at the 2011 tax returns of the 100 largest American corporations. The liberal-leaning think tank finds that at 26 of these firms CEOs earned more in compensation than the company paid in federal corporate income taxes. In addition to Motorola Mobility, the list of these 26 companies includes three other Illinois firms: Abbott Laboratories, Boeing, and Motorola Solutions.
Jha’s compensation especially stands out because it was based on “performance pay” even though Motorola Mobility posted a $249 million loss in 2011. Losses continued into 2012 and this Monday the company announced that it was laying off 4,000 workers including 700 in Illinois.
Jha resigned as company CEO in May when Google completed its acquisition of Motorola and the company is now lead by Dennis Whiteside, a Google executive. Motorola Mobility announced earlier this month that they will move their company headquarters from Libertyville to Chicago.
Last year, Jha and Motorola Mobility took advantage of a loophole that performance pay bonuses for CEO’s are completely tax deductible. CEO’s must pay taxes on their regular, non-performance pay earnings after the first $1 million.
According to study co-author Sarah Anderson, who directs the Institute for Policy Studies Global Economy Project, performance pay usually translates into stock options for the company CEO. The company can manipulate this performance award such as offering additional new options if a stock slumps, thus preserving the CEO’s lavish compensation.
Of Jha’s $47.2 million in compensation last year, $35.9 million was classified with the IRS as performance-based, according to the report.
The finding that Motorola Mobility pays no federal income tax follows a more than $10 million a year tax credit they got from the Illinois government to keep jobs in the state. The tax credit was temporarily withdrawn after this week’s layoff announcement. A call to Motorola Mobility headquarters today was not immediately returned.
Besides using the performance pay deduction for their executives, the report highlights other ways corporations can dodge taxes including offshore havens and use of research and development credits.
For example, Chicago-based pharmaceutical company Abbot Laboratories has 64 subsidiaries operating in 16 different countries deemed tax havens. Company CEO Miles White earned $19 million in 2011.
Chicago-based Boeing saved $137 million last year making use of research and development tax credits. The report argues that “basic research and development can be valuable,” but that the tax credit “is subsidizing large, well-resourced high-tech firms like Boeing that would have conducted the research anyway.” Boeing CEO James McNerney, also head of the Business Roundtable lobby, made $18.4 million last year.
These findings come as the presidential campaign is wading into the arcane world of tax policy, with both President Barack Obama and presumed Republican challenger Mitt Romney talking tax reform.
In a way, the candidates have no choice since the Bush tax cuts will expire at the end of this year. Report co-author Anderson hopes that a rewrite of the tax code at the start of 2013 is an opportunity to close key corporate tax loopholes. “There is going to be a lot of wheeling and dealing then to come up with some kind of tax compromise,” Anderson says.