Assuming he wins Senate confirmation as the next secretary of state, ExxonMobil chief executive Rex Tillerson undoubtedly will have to divest his stock shares in the oil giant – a fortune that appears to be worth more than $330 million.
In return for putting the proceeds in government bonds, he would get a significant tax break allowing him to defer paying any capital gains taxes on the stock sales. This waiver has been permitted since 1989 under a federal ethics law crafted to help attract top talent to the upper reaches of the government without saddling them with an extraordinary financial liability.
Under the ethics rules, the president or director of the Office of Government Ethics may allow an appointee to defer capital gains taxes on stock sales that were considered “reasonably necessary” to avoid conflicts of interest.
Hank Paulson, who gave up his job as chief executive officer of Goldman Sachs to become treasury secretary in 2006, set the record by divesting nearly $500 million.
As of Dec. 31, 2015, Tillerson held more than 1.8 million shares of ExxonMobil. At its current share price of about $92.70, that equates to more than $166 million.
In addition, he held another 1.9 million in restricted stock units awarded by the company for his performance in recent years. Those shares are technically worthless until they vest over the next four years. However, the company policy states that if an executive officer takes early retirement between ages 55 and 64 (Tillerson is 64), ExxonMobil’s compensation committee “must approve the retention of awards.”
Because his stock options and restricted units are considered compensation, Tillerson may have to pay taxes on their divestment as ordinary income. But he avoids a 15 percent capital gains tax on the shares he fully owns.
The ethics provision calls for appointees who divest shares to resolve conflicts of interest to put the funds in government bonds or some other less risky instrument. If he leaves them there until he dies, he never will have to pay the capital gains taxes.
Either way, Tillerson isn’t hurting. His total compensation exceeded $27 million in 2015. After more than 40 years with the company, he has accumulated pension benefits worth nearly $70 million.
In his new public job, Tillerson’s income will take a slide. During the Obama administration, the secretary of state’s salary has been $186,600.