February 9, 2012
In the News: A Tax Cut and an IPO
I had a couple of people ask me this week about the future of the Payroll Tax cut and whether Congress has made any progress in determining the future of the cut in anticipation of the expiration of the temporary extension on February 29, 2012. A quick search of my Google Alerts turned up the latest and greatest on this, and a few other topics. So for this week’s blog, I’ll hit on a couple of updates and interesting tidbits from the news.
Where Does the Payroll Tax Cut Stand?
It’s February (already!), and that question is understandably resurfacing. If you’re just emerging from winter hibernation, I’m talking about the future of the present reduced social security withholding rate of 4.2% (see earlier blogs on this topic). Unless Congress acts by the end of the month, the social security withholding rate will revert back to 6.2% on March 1, 2012. The current news on this topic is that there is no real news. Negotiations in Congress seem to be almost exactly where they were back in December – gridlocked over some sticking points. The issues are broader than just the cut in social security withholding – things like unemployment insurance benefits are also part of the mix. As one CEO of a large payroll company put it, “I have no opinion about whether or not the payroll tax cuts should be extended. Those decisions are for our elected representatives to make, if they can be convinced to make them. However, I do have two important questions. Do the members of the House and Senate know enough about how payroll works to understand the way in which their stifling indecision and last-minute changes are unnecessarily adding costs to American businesses, creating anxiety for American workers and adding complexity to our tax system?” I’ll second that. The clock is ticking and there are only 20 days left until the temporary extension expires, so stay tuned for more on this topic. We’ll address any changes or issues as the deadline draws nearer.
An Artist, a Social Network and an IPO: Oh My!
While I don’t have much to say about the general Facebook IPO buzz (yet!), one thing crossed my radar this week and I just couldn’t resist a mention. What caught my attention was a story (which turned into many stories) about an artist who seemingly stands to make millions in the Facebook IPO, all because he accepted stock options in lieu of a reported $60,000 in cash as compensation for painting the corporate headquarters during the company’s infancy. Did I mention he stands to reap not just millions, but hundreds (yes, with an “s”) of millions (estimates put the value of his stock options as much as $500 million)? Now, it seems certain that there will be many employee stock option millionaires once Facebook makes its public trading debut. That’s been expected, so it’s not such big news. Stories like that of this artist tend to infiltrate the media, because they capture the essence of what captivates many about the American dream. Work hard, take some risks, make good decisions, have a bit of luck, get rich. Or, at least build a respectable future. The story of this artist has all the makings of a movie – a rough start, including jail time, for this guy who reportedly turned his life around and became a very successful artist in his own right. Then, add in a Facebook IPO and all of his hard work (and then some) will pay off in a way only dreams can. I don’t want to devalue all of the employees who work incredibly hard day in and day out, earning their stock options bit by bit. What I enjoy about these stories on a very general level is that even though they are one-in-a-million, they keep our dreams about stock options and other forms of risk/reward compensation alive. It’s great publicity for stock options as a vehicle. Sure, it may not happen to everyone, but it does remind us that stock options (and other forms of equity compensation) can be a great compensation tool. While the returns may be greater in a company like Facebook, the reality is that it doesn’t need to take a multi-billion dollar IPO to reap positive rewards from stock benefits. There are many “success” stories.
I’m throwing in a poll this week for fun, and would love to see where you stand.
-Jennifer