Re:Capital vs. labor: who risks more?
by gamblor956 on Saturday October 25, 2014 @01:42PM
(#8508804)
Shares paid as compensation are taxed as ordinary income pretty much everywhere that they have an income tax. Capital gains are only imposed on the later sale of those shares, and only if the CEO sells those shares for more money than they were worth when they were given to him.
Even this reason, however, is probably exaggerated. Suppose for example that the CEO owns 10% of a company's stock. While they have a greater incentive to work hard, there is also no reason to think the stock price will rise faster than any other stock (by the efficient market hypothesis). This apparent contradiction is resolved by that fact that the market already knows that the CEO is incentivized to work hard. So as long as the CEO isn't awarded shares before it is announced publicly, the capital income from these shares should be no different to any other share.
The same applies to startups, however in the case of the startup there is no market signal so it is easier to cheat accounting rules and claim that the value of the awarded shares are lower than they really are.