The New York Times picked Mel Karmazin as its poster child for a story on what the newspaper claims is abuse of stock options by corporations to avoid federal income taxes. Karmazin was cited for the stock options that SiriusXM Radio granted him in 2009.
Karmazin was granted 120 million options at an exercise price of 43 cents each when his contract was extended and his base salary raised by a quarter million bucks to $1.5 million, effective with the beginning of 2010. That new employment deal in June 2009 came less than four months after Karmazin managed to pull the company back from the brink of a Chapter 11 filing and strike a financial rescue deal with John Malone’s Liberty Media.
According to the NY Times story, Karmazin’s options are now worth $165 million, up sharply from the $35 million in compensation expense that the company reported for the award. However, because of the way the US tax law is structured, SiriusXM will get to claim another tax deduction when Karmazin actually exercises the options. The NY Times estimates that the company would reduce its federal tax bill by about $57 million under that scenario. That doesn’t appear to factor in any taxes that Karmazin would have to pay.
Not mentioned in the NY Times story is that Karmazin gave up the options he was granted when he took the Sirius Satellite Radio job (before the merger with XM) because they became worthless due to the low stock price.
Not surprisingly, SiriusXM declined to comment for the NY Times story.
RBR-TVBR observation: Tax laws are bizarre and often don’t make sense. Accounting rules are bizarre and also often don’t make sense. No doubt the New York Times Company will maximize its tax benefits from the severance package for departing CEO Janet Robinson. Its CFO and accounting department would be derelict in their fiduciary duties if they did otherwise.
Why the New York Times thinks this is a big deal is a mystery to us, but the newspaper has a history of some strange reporting about tax issues. Noting its obsession with arcane tax rules, we wonder if the New York Times is likely to give its 2012 presidential endorsement to a candidate who wants to simplify the tax code. Perhaps someone like Rick Perry or Ron Paul?
