Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
In the US an employee's bonus (i.e. additional cash compensation or commission) is taxable income and adjusted gross income is taxed at the marginal rate in which the total falls. I'm sure there's guidance at IRS as to applicable schedule and allowances that reduce gross income of this non- salary compensation.

Perhaps you are like myself concerned by financial reporting encourages tax disincentives through distribution of profits to employees after calculating net income but before declaring taxable corporate income and retained earnings. EBT: earnings before tax or "net income." See also EBIT, earnings before interest and tax; EBITDA, earnings before interest, tax, depreciation, amortization.

Here is an example of how financial reporting comply with UK-GAAP and the International Accounting Standard (IAS) guidance on compensation structures -- to shelter profit reporting.

The Group operates a number of deferred share bonus and options schemes, the largest of which is the Deferred Share Bonus Plan (DSBP). Under this non-pensionable annual bonus scheme for Directors and senior executives, a part of the annual bonus, at the discretion of the Remuneration Committee, may be
awarded in the form of deferred conditional rights to ordinary shares in the Company, with the additional part of the bonus being paid out in cash. Annual bonuses are subject to the attainment of challenging performance targets which are specific to each individual and either relate to Group thresholds, subsidiary company targets or a combination of both for a period not exceeding the relevant financial year of the Company.  The annual bonus pool for the Group is fixed, based on pre-bonus profit based calculations.  The element of the bonus pool which is paid out in cash is determined by deducting share based payment charges made against income in the performance period from the bonus pool.

During 2004, the amount which was charged against the bonus pool for share based payments was the UK GAAP charge, and the balance of the bonus pool was paid out as cash bonus. The latter amount is not impacted in 2004 by the restatement of the share based payment charge to IFRS, but in the future it will be.  The adjusted EPS takes account of this one-off adjustment in 2004. ...

Employee Benefit Trust

The Company has established The Savills plc 1992 Employee Benefit Trust (the
EBT), the purposes of which are to grant awards to employees to acquire shares
in the Company pursuant to the Savills plc 1992 Executive Share Option Schemes and the Deferred Share Bonus Plan and to hold shares in the company subsequent to transfer to employees on exercise or vesting of the awards granted under the schemes. The assets and liabilities of the EBT are included in the balance sheets of the Group and the Company. Investments in the Group's own shares are shown as a deduction from shareholders funds.

I've no reason to believe that finance departments elsewhere do not utilize legitimate tax advantages and SPE capital to maximize "bonus" earnings, even if that requires shorting the company's stock.

And as I understand the GAAP schema, corporate revenue recognition and timing of employees' compensation tend to minimize rather than maximize taxable income in any given fiscal year. NB. In general in the US asynchronous reporting provides a crude incentive to defer compensation. The corporate fiscal year is 1 Oct to 30 Sept; tax reporting is 30 March, iirc, in the immediate calendar year following. The individual tax year is calendar Jan to Dec. So Q4 of the calendar year is the period to reconcile profits earned and deferred (excluded from quarterly corporate taxable income) over the prior 12 months. Typically, employee bonuses are paid (realize) profits between Jan and March in the following calendar year, therefore recognized in the next tax year.

Here is an example of "bonus pool" structures.

Diversity is the key to economic and political evolution.

by Cat on Sat Jan 31st, 2009 at 04:44:51 PM EST
You make it sound so simple to understand, but it's actually so complicated that even Geithner and Daschle didn't quite understand the fine points.


"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Sat Jan 31st, 2009 at 08:43:51 PM EST
[ Parent ]


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