Trouble on Top

Heavy personal income taxes have loaded big corporations with a new problem: how to have & to hold able executives. So much tax is carved out of upper-bracket incomes that corporations find it almost impossible to give a top man a salary increase that will do him any good. The $100,000-a-year man today keeps $48,100 after taxes; figured in terms of 1939 dollars, his take-home pay is only $26,070.* He works part of every day and full time every other day for the Government. As a result, many men who have piled up pension or other benefits refuse to take bigger jobs with bigger companies.

Last year, the Revenue Act of 1950 offered a partial solution to the puzzle. It permitted corporations to give executives options to buy stock at bargain prices (usually at 85% to 95% of the market price). If the executive sold the stock after holding it at least six months, his profit would be taxed at the low capital-gains rate of 25%. This meant real income for anyone in the surtax bracket. In the past year, more than 100 corporations have adopted stock option plans.

But last week, the U.S. Government was thinking of taking away what it had given. In Manhattan's granite-columned Bar Association Building, an advisory panel of the Salary Stabilization Board held hearings to determine whether stock options are inflationary, and can therefore be forbidden under the Defense Production Act.

Up popped Republic Steel Corp.'s Counsel T. F. Patton. Said he: Republic needs a stock option plan to hold on to its top executives. Last year, before the company adopted its plan, Republic lost three top men to other companies which offered fat extra-salary benefits; even President Charles M. White had been approached. But Lawyer Arthur Dean of Manhattan's top-drawer firm of Sullivan & Cromwell probed right to the heart of the matter. Unless companies can reward their executives by such devices as stock options, said Dean, they will slip away in increasing numbers to enter business for themselves. In many a U.S. community, hardworking dealers who own their own businesses are making more real income than the heads of companies whose products they sell.

At week's end, the panel recessed, undecided whether stock options are inflationary or not. Also undecided: If the option plans are thrown out, by what other means will U.S. industry find merit incentives for its top management?

* General Motors Corp. once boosted executives' pay with stock bonuses, changed the plan because executives had to sell the stock to pay the tax.

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