Warren Buffet slammed the tax differential between the rich and poor yesterday during his charity benefit for Hilary Clinton. Buffett cited himself, the third-richest person in the world, as an example. Last year, he was taxed at 17.7 percent on his taxable income of more than $46 million. Meanwhile, his receptionist was taxed at about 30 percent! Buffett said that this was despite the fact that he was not trying to avoid paying higher taxes - that is, he doesn't use tax shelters. He then challenged Congress and his audience to see what the people who "clean our offices" are taxed and compare that to the rich in America - it's simply not a fair system. This is just another example of the despairity between the rich and poor, whether it be in terms of executive compensation granted by corporations or taxes levied by the government

Government regulators have recently announced a new bill that would tax private equity firms' profits as ordinary income instead of capital gains income. For years, private equity firms like Blackstone have invested their clients' money and had the proceeds taxed at the capital gains rate of 15% instead of the corporate tax rate of as high as 40%. Now regulators are arguing that the fees these private equity firms collect (usually a portion of their returns) should be taxed at the corporate tax rate as ordinary income instead of the lower capital gains tax rate. This income is known as carried interest. Government officials argue that if you invest other people's money and make a profit, then that profit should be taxed as ordinary income - it's as simple as that.

Yahoo's former CEO Terry Semel is one of the best examples of a working model for executive compensation. Upon moving from CEO to a non-executive chairman position, he will be foreiting 4.5 of the 6 million in stock options he received in May of 2006 while also forfeiting any severance pay. The company's stock was doing perfectly fine up until last year when Yahoo's numbers began to suffer - then some questioned Terry's paycheck. However, many failed to realize that while he did receive stock options during this time, they were options with a high strike price of $31.59 a share which gives it a present value of just $63 million with a clause that he would not receive future stock options for three years. And with a $1 salary and an all-option bonus, this meant that the $63 million over three years became only $22 million assuming he continued to perform well. This is how executive compensation should work - executives should have a large stake in the company and have that stake tied directly to performance. Let's hope more companies catch on and follow this same trend.

Proxy season is in its final months and little has changed in the way of measures to curb excessive executive compensation. So, what have the new rules really accomplished? Well, it now takes companies much longer to create compliant disclosures at additional cost to shareholders. And while the disclosures may be written in easier English than the original ones, they are still very far from perfect. In fact, it is rather unlikely that the average investor would take the time to read through the hundreds of pages of documentation.

So, what can investors do? Well, there are several new services out there that help evaluate executive compensation and break it down in numbers easier to digest for the average investor. ExecutiveDisclosure.com assists in evaluating executive compensation by offering two types of comparisons: Pay Vs. Performance and Pay Vs. Peer Pay. Pay versus performance measures the percentage increase in stock prices versus the percentage increase in compensation. Obviously, if pay is outpacing perforance, there is a problem. Meanwhile, the peer comparison gives an initial basis for comparison.

In the end, the SEC still has a long way to go until executive compensation is readable for the average investor. Until then, services like ExecutiveDisclosure.com may be the best option for investors.

A group of Verizon Communications investors will be the first to test a dramatically different approach to evaluating executive compensation. The telecommunications company was selected by the group of investors due to its discount to its peers, excessive executive compensation and large bet on a future project - FiOS. The company's shareholders have created a forum through which they can discuss the prospects of the capital-intensive project as well as ways in which management can be incentivized to make it work. In fact, one of the primary objectives of the forum is to get investors thinking about management's stake in the success of FiOS and getting them to ask questions if it is not the case. The company is currently evaluating whether or not to particpate in the forum sponsored by ShareholderForum.com. Regardless, this is certainly an interesting development to follow...

The main question facing everyone involved with executive compensation is simply: How much is enough? The often large sums of money that executives receive have outraged many investors and columnists, but in a free market economy the best go to the highest bidder and the same thing goes for CEOs. No company wants to pay its CEO below that ever-increasing median either lest they face losing their leader. So, how does one remedy this situation?

Well, The Blue Ribbon Commission on the Governance of Executive Compensation in Canada conducted a study on the matter and came up with a very simple solution. The committee suggested that at the heart of all the controversy is the simply matter that most investors are just not aware of where these figures are being derived. Consequently, they believe that the single most important thing that companies can do is simply justify the compensation amounts in regulatory disclosures. This means not only disclosing all those members who had a say in the compensation amounts, but also disclosing exactly what performance measures pay figures are tied to and why. By explaining these figures in plain english, the commission believes that many problems can be avoided.

There were clearly problems over at Yahoo as more than one third of shareholders voted against the re-election of one or more directors, reflecting views of excessive executive compensation and poor performance under CEO Terry Semel. While all the incumbant directors were re-elected, the move was one of the largest no-votes of the year and sent a clear message to management. Interestingly, shareholders also rejected by 2-1 a proposal that would have allowed them to have a non-binding vote on executive compensation.

Yahoo's executive compensation problems stemmed from Terry Semel's large bonus and retention pay amounting to 6.8 million stock options while the company's shares dropped 35%. The CEO's $107.5 million paycheck in 2006 also made him one of the highest paid executives of the year. Many other executives at the company also received what many called excess compensation. In the end, shareholders are hoping that the vote at this annual meeting sent a clear message to management to either improve the company's performance or reduce their pay.

A new study examining turnover among top executives found that corporate boards are three times more likely than a decade ago to pull the trigger on an underperforming chief executive officer. In fact, roughly a third of all CEOs who left their company last year were fired to forced to resign for performance related issues. Many analysts and investors are hoping that such high turnover rates will stay the norm, as shareholders are attempting to increase their powers through new SEC regulations.

The biggest problem is that many executives are now requesting large departure packages, even when they fail and are fired from the company. One recent study found that executives ousted from the 1,000 largest companies in 2006 received more than $1 billion in severence packages! Many analysts and investors are hoping that new SEC regulations forcing disclosure will help curb these excess expenditures while still forcing boards to react quickly to failing executives. This is a welcome change for shareholders who have been dealing with subpar leadership in the past...

The very tenants of capitalism suggest that most Americans desire to move up the corporate ladder, but that may no longer be entirely true after new SEC regulations go into effect. The new SEC regulations aimed at improving corporate transparency now require the top five (in terms of pay) officers in a company to disclose the details of their compensation. The rule has given a new meaning to the #6 guy, who stands to benefit from both high pay and a confidential pay check.

The #6 guy has become a somewhat coveted spot - you can make a lot of money without having to deal with shareholder and public scrutiny. And the spot has become even more valuable as executives are now forced to disclose not only their salaries and stock options, but also their perks. In some companies, these perks can be significant and cause shareholder concern. In fact, a secretive pay check is becoming such a valuable commodity that some CFOs and senior officers are beginning to disappear from the top five lists in some mid-cap companies. And investors can only assume more such efforts to conceal pay figures will arise in the future...

Many investors believe that executive compensation is getting out of hand, but what about the CEO's that perform exceptionally well? One of the best performing bosses is New Century Financial's Robert K. Cole. During his nine year tenure, he has provided an average annualized return of 25% for his shareholders with his six year annual return approaching 36% - indicating that this number had been trending up. And what was his six year compensation? A mere $1.6 million, which pales in comparison to the large salaries we are seeing at many other companies like Apple and Wal-Mart. This below average pay and above average shareholder returns make Robert Cole one of the best performing CEOs in America.

Wal-Mart's (NYSE:WMT) problems be pushing down the company's stock at a rate of -3.4% annually but certainly not the compensation of it's top executive H. Lee Scott, which has topped $8.5 million per year. Scott is only the second CEO in Wal-Mart's history, with the first obviously being Sam Walton, and many are questioning whether or not he is the right one to lead the company. The world's largest retailer has underperformed the S&P500 for most of the decade while new initiatives such as expasions into Germany and the inclusion of higher end merchandise have failed miserably. Meanwhile, the company continues to receive a slew of angry letters from unions and lawyers looking to slow the company's rapid expansion outside of urban America and into smaller towns.

So, is Scott paid too much? Well, Wal-Mart continues to defend Scott's paycheck and his performance, pointing to the fact that last year alone sales increased $37 billion and income from continuing operations increased by $770 million. Moreover, the company claims Scott's compensation is benchmarked with the CEOs of other publicly traded U.S. retailers and large companies, adding that its boss gets paid one of the lowest salaries as a percentage of annual revenue and net income. Regardless, all of these improvements have done little for shareholder value, which is all that matters when all is said and done. Perhaps it's time for a change...