* For an explanation of the different approaches used by the AFL-CIO and the U.S. Securities and Exchange Commission to calculate total compensation, click here.

HOW MUCH TAX PLANNING CAN ONE CEO REALLY USE?

While most working Americans struggle to file their federal tax returns by April 15, that’s one chore Ray Irani, chairman and chief executive officer of Occidental Petroleum, doesn’t need to worry about. Among the top-paid executives in the country, Irani collected more than $184 million in 2008 by exercising stock options alone.[1] He also received a $1.3 million salary, a bonus and other incentive pay of $3.6 million and another $31 million in vested stock.[2] But one of the lesser-known perquisites Irani receives is company-paid tax preparation assistance. As part of Irani’s employment agreement, the company will continue to pay for his tax planning benefits for the rest of his life, even after he retires.[3]

In 2008, Occidental Petroleum provided Irani with more than $400,000 in tax preparation and financial planning services.[4] That’s about eight times the $50,233 median U.S. household income in 2007.[5] It’s also more than the $400,000 salary of the president of the United States.[6] 

In 2006, when Irani made $415 million, the company picked up an even bigger tab— $556,470—to take care of his tax preparation and financial planning.[7]

How does an executive use $400,000 in tax preparation and financial planning assistance in just one year? While many Americans prepare their tax returns using TurboTax or other software, “Occidental executives are required to have their personal tax returns prepared by a tax professional qualified to practice before the Internal Revenue Service in order to ensure compliance with applicable tax laws,” the company’s 2009 proxy states.[8]

Irani gets more than tax preparation for his $400,000. The company-paid perk also includes investment services.[9] If his fortuitously timed stock option exercises are any indication, it appears that Irani received good investment advice. He sold shares from his 2008 stock option exercises in April 2008 at $87.15 per share and at $84.46 per share in August 2008.[10] By the end of the year, Occidental Petroleum’s stock price had fallen to less than $60 per share.

Occidental Petroleum has given Irani other opportunities to save on his taxes. In the past, he deferred paying taxes through Occidental Petroleum’s nonqualified deferred compensation plan through which he accumulated $7.1 million, as well as $40.2 million in the deferred stock plan.[11] And should the company be acquired, Irani stands to receive a tax gross up for any excise tax owed on his golden parachute under Internal Revenue Code section 280G.[12]

To the detriment of its shareholders, Occidental Petroleum’s own tax-planning efforts—deducting the cost of Irani’s compensation as a business expense—may have been less successful. The company’s directors have not adopted a policy that executive salaries should be deductible under Internal Revenue Code section 162(m)—which caps the deductibility of executive pay at $1 million, unless it is performance-based—and Irani’s base salary exceeds the limit under the law for non-performance based executive pay.[13]