Taxing ideas

Here I post some ideas for taxes.

Currently there is much noise surrounding executive pay.  Companies pay these salaries claiming they need to, in order to attract the top talent.  Detractors say that failure gets rewarded as much as success and these salaries are out of touch with reality.

In my view it is not the business of Government to tell privately owned companies what salary levels they can pay company employees.

I also consider that UK taxes are already too high.  Though I don't entirely subscribe to the premise that our entrepreneurs are flooding overseas.

I do agree that salaries at the top have become disconnected with those lower down the pay-scale.  My solution is as follows:

• Establish a multiplier of average earnings - let's say 20 times UK National average.  That would equate to say, £500K per year.
• Change UK Corporate Tax such that any compensation payment that exceeds this level, for any individual employee, cannot be deducted as a company's expense.  So if a Company wants to pay someone £1 million, that is fine, but the cost to the company would be higher because their effective tax rate would grow.
• This to apply to all payments to all employees - not just directors or officers.
• Compensation to include  base salary and any other allowances, car, accommodation, etc., pension contributions, share options that vest or otherwise become encashable within 3 years.
• Change National Insurance rules such that any compensation in excess of the multiplier (  £500K) would be subject to a special surcharge of 25% to the Company and such NI expense would not be deductible against company profits.
• Special rules to be applied to Non-Executive Directors.  For them the multiplier would be set at maximum 3 times national average, so  £75K.  Any compensation (defined above) over this limit would be non-deductible.
• Also for Non-Execs - restricted to sitting on  the board of directors for no more than 3 companies (as an Executive or Non-Executive Director)

So let's say a company pays an executive a compensation package of £1 million.  He/She takes home exactly as at present (but hopefully the top rate is soon reduced and they can take home more)

The company today, can make a deduction of £1 million and thereby reduce it's taxes.  In my proposal the cost to the company would increase by £250K  (25% lost Corporate Tax on the 'excess salary' and 25% NI Surcharge).

I think that when companies and their owners see the effects of these higher costs, they will get a sense of reality.  Also, since this is universally applied, within the UK, I suspect that the top talent might find opportunities in other organisations to be similarly constrained and perhaps not so available.  This might remove the ratchet effect we see these days.



Comments?