Cap’n Ken’s Homespun Wisdom

OK, this is minor in the grand scheme of things, but it irritates me that the media seems clueless as to some really basic concepts of income and taxation when it comes to this big Powerball jackpot winner.

On CNN and in papers across the country (thanks to the Associated Press story), the winner”s net take is being described as follows:

The winning ticket holder has the option of taking the money in one lump sum or installments over 30 years. The cash option is $177.3 million, or $124.1 million after taxes. On the installment plan, the first payment would be $6,507,986 after tax.

A little quick math shows that - according to the media - the winner will get 70% of the cash option payment “after taxes”. But wait. The federal tax rate is 35% on income over $336,500, and I”m pretty sure $177.3 million is more than $336,500. And the IRS treats lottery winnings as gambling income, which is taxed as regular income.

So what gives? It took me about 30 seconds on Google to learn that gambling winnings are subject to 25% withholding from the IRS and that Nebraska withholds 5% of lottery winnings for state income taxes. Withholding, of course, is how the government ensures some taxes are paid even if an individual would choose not to file a return and claim the income.

In reality, the winner will get about $107 million after taxes based on almost all of the lottery income being taxed at the 35% federal rate and the 4% state tax rate in Colorado (where the winner is apparently from).

But the media, as usual, took the lazy route. It would have been most correct to say the winner will receive a check for $124.1 million and will net about $107 million after taxes, but even saying they would “get $124.1 million after taxes are withheld” would have been closer to the truth.

That”s asking too much of the media, I guess.

OK, that”s not technically correct, but how fucking ridiculous is it that certain U.S. Senators are now complaining that “family tier” cable TV packages leave out ESPN?

Can you blame cable executives - who are currently cowering under the notion that the government might start regulating them if Little Johnny sees a tit now and then - for not including a network that in the past has produced shows full of sex and drugs? And ESPN now shows the NBA, for Jesus” sake. That”s some of the most offensive programming on TV.

Whether it was because of their “don”t be evil” thing or the more typical practice of guarding “trade secrets”, hats off to Google for telling the U.S. Government to stuff their subpoenas of URLs and query terms where the sun don”t shine.

Maybe on its face there”s not a privacy concern with giving the feds a sample of queries (without user information) run on Google”s service - but remember who the folks are who want this information. If one of those random queries was “kid porn with horses”, do you not think that goes into a file somewhere so a U.S. Attorney can draw up a new subpoena for the ID of the user who did that search?

And watch your ass if the Christians actually get more political power.

Many readers of The Wisdom may not realize just how much The Cap”n knows about you - and how you got here. My personal credo is “don”t be evil if somebody”s watching”, so you really don”t have much to worry about. But consider a visit from earlier today as recorded in The Wisdom logs:

If you can”t make out what I”ve circled in red, this visit came from someone using a popular search engine to find “massage parlors and buford, ga”. This person was in Buford on the Adelphia system (I”ve redacted the specific IP address as well as the URL of the site this person used to find The Wisdom). And this person uses Windows XP, IE 6 and has a screen resolution of 1024 x 768.

And in the grand scheme of things, I really don”t have much information about this user compared to most of the big search engines. But if the government had this information and a reason to find this person, they have plenty enough to go on.

The post this person found was my mundane account of checks I wrote in 2005. TCL made some comment about massage parlors on buford highway, which is how it became a search match. This person didn”t stay long at all - obviously my check-writing habits were not exactly what this person was looking for.

I”m sure this was a dedicated Christian minister researching the plague of massage parlors in northern Gwinnett County. And until Gov. Ralph Reed is sworn in, we probably don”t have to worry about this kind of thing raising questions. Sure, surfing sexual sites will be illegal in Georgia, but what are the chances they”ll notice if I don”t report all suspected violators in my montly user report to the state?

The point is that the government, in the name of “protecting minors”, “fighting terrorism” or - surely someday - “fighting online indecency”, will want to know more and more about who is doing what online. Every time an organization gives up a little information without a fight, they get a step closer.

So it”s good to see there are organizations that are willing to fight from the outset.

It looks like the SEC (The Securities & Exchange Commission, not the NCAA”s best conference) may push ahead with this plan to require “total cost” disclosures for public company executives. The idea here is that requiring public companies to declare a single, total compensation number for its executives will somehow keep executive pay in check.

First of all, some people argue that such high-profile disclosures will actually lead to higher executive pay, as each top executive - like each NBA player - will know how much his peers are making and therefore demand equal pay. And this would create an upward spiral of compensation.

There”s a lot of validity to that argument. Pro athletes and movie stars are prime examples of workers who push each other”s pay up by constant visibility into earnings. TCL will tell you how this also happens in the legal profession (at least here in Atlanta), where new associate pay packages for the top firms are public knowledge, and those disclosures create an upward pressure on pay.

But that”s not what I”m writing about here. For the record, however, I have no problem with anybody”s salary or earnings. And unless you can ever envision a time when you tell your employer “No thanks, I really don”t deserve that much money”, neither should you.

What irked me this evening is the AJC”s piece about the proposed SEC rules. I”ll quote their piece rather than linking to the site they run that requires you to register a fake email address before reading their articles.

Here”s the story lead, as written by notorious anti-business writer Marilyn Geewax:

In recent years, many large companies have angered shareholders by rewarding top executives with huge compensation packages, sometimes involving hundreds of millions of dollars for a year”s work.

Today, federal regulators are expected to approve measures intended to restrain compensation excesses.

The proposed rules would force publicly traded companies to more clearly disclose what riches are being bestowed upon the boss, including such goodies as personal trips in the corporate jet.

Note the language. “huge compensation packages”, “hundreds of millions of dollars for a year”s work”, “restrain compensation excesses”, “riches” being “bestowed”, “goodies”. The guts of the story involve a fairly straight-forward look at the issue, but the lead clearly sets the anti-”rich” tone for which the AJC is famous. The headline, at least in the online version, is “Stealth pay, perks may be over”. What, exactly, is “stealth” about every dollar of compensation being reported in public documents?

But that”s fine. We expect that from the AJC (which is owned, by the way, by two sisters tied for No. 12 on the list of richest Americans - worth a combined $25 billion - and who have never seen fit to allow their employees or others to own shares in the newspaper company). But what really got me was a bit later on in the story meant to demonstrate how hard figuring out executive pay can be:

Investor advocates point out, for example, that last year, Forbes magazine ranked Terry Semel, chief executive of Yahoo, as the country”s highest-paid executive, with annual compensation totaling $230.6 million for 2004. But many shareholders wouldn”t have been able to figure that out because the Yahoo proxy statement split up compensation information into separate listings for salary, bonus, stock options and other compensation.

It took me less than two minutes to find the Yahoo proxy and add up Semel”s compensation listed there ($600,000 salary, $1,920 in other compensation, $229,951,740.78 in option exercises). If “many shareholders wouldn”t have been able to figure that out”, then “many shareholders” have no business whatsoever owning stock.

But I guess that”s not easy enough. Yahoo”s proxy should start off with “TERRY SEMEL - $230 MILLION FUCKING DOLLARS!“.

Beyond the sorry statement these rules would make about the intelligence of American investors, getting investors to focus on a “headline” compensation number would take some of the context out of things like stock grants. From the time he came onboard in 2001 to the end of 2004, Semel helped create about $40 billion in market cap for Yahoo. The proxy devotes no less than 699 words to explaining exactly how the company came to award Semel the stock options - which, by the way, would be worthless if he didn”t do his job well - that resulted in his $230 million exercise in 2004:

The Compensation Committee believes that Mr. Semel”s leadership has contributed to the Company”s success in establishing its brand and creating shareholder value. There is also recognition that Mr. Semel”s unique skills, experience spanning the internet and media industries, and repeated past success make him an attractive candidate to competing organizations that believe they could leverage his compensation into significant shareholder returns. Consequently, the Compensation Committee took aggressive action in 2004 to retain Mr. Semel. This was done primarily through equity-based grants designed to position him in the top-quartile of major global-company CEOs, provided that the Company is in the top quartile of shareholder value creation and he remains employed as the Company”s CEO.

In determining Mr. Semel”s compensation, with the assistance and advice of the Independent Consultant, the Compensation Committee reviewed Mr. Semel”s compensation package in view of its philosophy described above and in comparison with the compensation packages of chief executive officers of selected Internet-related, technology and media companies. The Compensation Committee decided not to increase Mr. Semel”s base salary for 2005 despite finding it to be lower than that of comparable companies, consistent with the Committee”s philosophy of placing heavy emphasis on long-term incentive compensation.

In March 2004, the Compensation Committee addressed Mr. Semel”s 2003 performance. It awarded Mr. Semel a bonus nonstatutory stock option grant for 1,800,000 shares of common stock rather than a cash bonus for 2003 (the “Bonus Option”). The grant of the Bonus Option was based on the board”s positive assessment of Mr. Semel”s performance during 2003 and was also intended to provide an incentive for future performance. The Bonus Option was fully vested and exercisable as of the grant date. The Compensation Committee in March 2004 also granted Mr. Semel an annual review option to purchase 4,000,000 shares of the Company”s common stock, based upon, among other factors, the Compensation Committee”s positive assessment of Mr. Semel”s performance during 2003. The option becomes exercisable on the fourth anniversary of the date of grant, subject to acceleration on December 31, 2004 with regard to 2,000,000 of the covered shares, and on December 31, 2005 with regard to the remaining 2,000,000 covered shares if certain performance criteria regarding the Company”s adjusted earnings are satisfied during the prior-year periods. The Company satisfied the applicable performance criteria for performance through December 31, 2004, with the effect that Mr. Semel vested in 2,000,000 of the options as of that date.

In December 2004, the Compensation Committee addressed Mr. Semel”s 2004 performance. The Compensation Committee noted in particular the strengthening of the Company”s core businesses, including premium services and advertising; the completion of a number of strategic alliances and acquisitions both domestically and internationally, including 3721 Network Software Company Limited, Kelkoo, S.A. and MusicMatch Inc.; and the Company”s enhanced financial and stock performance. As part of such annual compensation review, the Compensation Committee granted Mr. Semel a fully vested option to purchase 1,200,000 shares of the Company”s common stock (rather than a cash bonus). Consistent with its provision of annual review grants to employees, the Compensation Committee also awarded Mr. Semel an annual review option grant to purchase 200,000 shares of the Company”s common stock, which grant vests over a four year period, with 25% of such shares becoming vested on the first anniversary of the date of grant and the remainder vesting ratably each quarter over the remaining three years.

As discussed above, in February 2005, the Compensation Committee determined to provide retention grants to certain of its key employees. The Compensation Committee granted Mr. Semel, as part of that program, a retention option to purchase 2,000,000 shares of the Company”s common stock and a retention grant of 250,000 restricted shares of the Company”s common stock. The option becomes exercisable on the fourth anniversary of the grant date, subject to acceleration with regard to 1,000,000 of the covered shares following December 31, 2005, and the remaining 1,000,000 covered shares following December 31, 2006, if certain performance criteria regarding the Company”s operating cash flow are satisfied during the prior-year periods. The restrictions on the restricted shares lapse in full on the third anniversary of the grant date, subject to pro rata accelerated vesting in the case of death.

There”s actually a reason why they granted him those stock options? Who knew? A lot fewer people if nobody had to look beyond a “headline” number, I”d bet.

The AJC has a story this morning about how the postal rate increase took people by surprise yesterday. I”d link to the story, but the AJC makes you register a fake email address to read stories, so here”s the lead:

Post office customers lined up to buy 2-cent stamps Monday, the first business day since a rate increase raised first-class stamps to 39 cents from 37 cents.

“I come here every day and I didn”t know an increase was coming until I tried to mail a letter with an old stamp,” said Quanesha Lewis, 21, who has a post office box at Atlanta”s downtown Phoenix station. “A lot people are going to be surprised — just like me.”

Believe it or not, The Cap”n got caught up in the postal rate increase thing yesterday as well. In the course of a year, I doubt if I mail 10 things I have to put postage on (I mail a lot of NetFlix DVDs back and send a few postage-paid deposits to NetBank, though), but yesterday I needed to send off the final payment on the wife”s Santa Fe (it was, of course, on an auto-pay, but the stupid finance company lacks the ability to adjust the final payment to less than the normal monthly payment, so I needed to originate a payment from my end. Normally, I”d send a check through NetBank online, but I wanted to make sure the account was correctly noted and all that. Thus a physical check in the mail).

I had one 37-cent stamp left (I buy stamps 10 at a time), so I swung by the East Atlanta P.O. on the way to work. It was just about to open and sure enough there was a line of people, apparently waiting to buy 2-cent stamps. My solution? Pop 40 cents into the single-stamp machine, buy another 37-cent stamp (the P.O. hadn”t swapped them with 39-cent ones yet) and send the payment off with 74 cents of postage on it.

I don”t know about you, but I”m more than happy to over-pay on my rare postage purchase by 35 cents to not stand in line for 30 minutes.

The Wisdom”s unofficial in-house counsel TCL kept The Cap”n out of federal custody last week when he explained why offering free housing to a select group of hotties is likely not a federal crime. But today we learn that President Bush has signed a law making it a federal crime to “annoy” people online if you don”t reveal your true identity.

To quote a quotation of the law (too lazy to go find the bit myself):

“Whoever…utilizes any device or software that can be used to originate telecommunications or other types of communications that are transmitted, in whole or in part, by the Internet… without disclosing his identity and with intent to annoy, abuse, threaten, or harass any person…who receives the communications…shall be fined under title 18 or imprisoned not more than two years, or both.”

The news.com article I”ve linked to above seems to make it pretty clear that if you have a blog, don”t reveal your true identity and write things with the intent to “annoy” anybody, you”ve now broken the law.

I have a blog, I don”t reveal my true identity and I sure as hell make attempts to annoy people. Examples:

- Les Miles and people who support him

- USC fans
- Hypersensitive journalists

- the wife
- Georgia fans

- The Dan Band
- The Parents Television Council

- Brennan Hawkins” father and, of course, Christians in general

In many cases, I do make a very conscious effort to annoy specific people or groups of people. I admit it.

Counselor, can you get me out of this one?