From 2009 to 2014, Walmart awarded Michael Duke, its CEO until late last year, nearly $116 million in so-called performance pay — exercised stock options and other compensation that carried an added benefit: It was fully tax deductible, meaning the company got an added $40 million in federal tax breaks, according to a new report from tax-reform advocates at Americans for Tax Fairness and the left-leaning Institute for Policy Studies.
Over that same period, the report finds, Walmart got $104 million in tax breaks for $298 million in performance pay awarded to eight top executives. The groups behind the report say taxpayers are left to foot the bill for this “massive subsidy for excessive executive compensation” because of what they call a loophole that allows all performance-based pay to be deducted from corporate income taxes.
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That provision was created as part of a 1993 reform meant to discourage excessive executive pay. The law capped the tax deductibility of employee pay at $1 million but allowed companies to still deduct unlimited amounts of “performance-based compensation.”
“When Walmart gets a $104 million tax break for giving its executives outrageous pay packages, the rest of us pick up the tab,” Frank Clemente, executive director at Americans for Tax Fairness, said in a statement. “With this tax loophole, the bigger the executive bonuses the less Walmart pays in taxes. This is truly one of the most perverse loopholes of all time.”
That so-called loophole has been the target of tax reform proposals from both Democrats and Republicans. Closing it would generate more than $50 billion in tax revenue over 10 years, according to estimates from the Joint Committee on Taxation cited by the Americans for Tax Fairness report.
This isn’t the first time Walmart’s pay practices have come under fire, of course, but critics have more often focused on what the company pays its associates, not executives. Yet the retailer’s executive compensation plan has also recently faced criticism from Institutional Shareholder Services (ISS), a firm that advises investors on proxy votes, and CtW Investment Group, which works with pension funds sponsored by unions.
The criticism of Walmart’s pay, and the tax law that allows such deductions, comes on the same day that employees and union organizers with a group called OUR Walmart plan to stage strikes in 20 cities in an effort to pressure the retailer to raise wages. The protesters want the company to pay its associates at least $25,000 a year. The strikes are timed to coincide with the company’s annual shareholder meeting taking place on Friday.
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Critics, including the authors of the new report, say Walmart’s pay practices subject U.S. taxpayers to a double hit: Not only does the company get to deduct performance pay for executives from its taxes, but it pays it workers so little that many of them rely on public assistance programs like food stamps and Medicaid. Americans for Tax Fairness estimated that Walmart employees receive $6.2 billion a year in taxpayer-funded subsidies.
A Walmart spokesman said that $6.2 billion figure is incorrect and based on flawed methodology.
The company pushed back more broadly on both the ISS recommendations and the tax report. A spokesman said that it’s important that the company be able to offer competitive pay in order to attract talent. “ISS’s own analysis shows that Walmart’s executive pay is a low concern and aligns with the company’s performance,” the spokesman told The Fiscal Times. “Our financial performance during fiscal 2014 was below our expectations at the beginning of the fiscal year, and our executives’ pay for fiscal 2014 reflected that performance.”
The company questioned the details and motives behind the report from Americans for Tax Fairness and the Institute for Policy Studies. “This is the same group that put out a similar flawed report last year, based on promoting their agenda rather than on the facts,” the spokesman said.
“Unlike some companies, Walmart pays billions of dollars a year in U.S. federal, state and local taxes, helping to fund education, public safety, and infrastructure improvements in the communities where we operate. Walmart is a pay-for-performance company. Our executive compensation program has been developed in the same way as other companies across America, and it complies with the federal tax laws.”
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