- The Washington Times - Saturday, June 29, 2002

NEW YORK (AP) In the year before Enron Corp. filed for bankruptcy, Chairman Kenneth L. Lay and more than 140 other top company officials got almost $310 million in salaries, bonuses, long-term incentives, loan advances and other payments.
But court documents made public this month show they made much more $434.5 million by exercising stock options and receiving stock from the company.
The gains probably wouldn't have raised eyebrows if Enron had managed to stay afloat. After all, the energy trader's stock was in demand and the 1990s had ushered in a wave of generous stock-compensation packages for executives that gave them much more than their annual salaries and bonuses.
But after Enron's collapse and revelations that other companies hit by accounting scandals lavished options and multimillion-dollar loans on their executives, experts are questioning the compensation practices.
They say it appears that many executives based their business decisions on how they could quickly build and protect their own fortunes and cared less about the long-term growth and profitability of their companies.
"The growth in stock options started in 1990, and the idea was to align the interest of managers with the interest of shareholders." said Phil Cochran, director of Center for the Study of Business and Public Issues at Pennsylvania State University. "But in retrospect it was probably a terrible mistake."
Short-term stock performance was the only yardstick that seemed to count. When share prices hit targets, executives cashed out and reaped huge windfalls. Company loyalty mattered less and less as demand for a limited pool of top executives grew stronger.
"If you go back a generation, managers were motivated by creating better products," Mr. Cochran said. "In some way this focus on executive stock options changed their orientation to a "'me' orientation of 'How much can I get, and when can I get out?'"
Worldcom Inc. founder Bernie Ebbers was forced out in April. But he owes $408 million to the company and has a severance package giving him a $1.5 million yearly pension for life. If he dies before his wife does, she'll receive $750,000 a year.
This week the company announced that Worldcom hid $3.8 billion in expenses from investors. Then, for three days in a row, President Bush pledged to crack down on company irresponsibility.
"Corporate America has got to understand there is a higher calling than trying to fudge the numbers, trying to slip a billion here and a billion here and hope nobody notices," Mr. Bush said at a fund-raiser yesterday.
Mr. Ebbers reaped nearly $140 million from selling Worldcom stock in the past decade, while his former chief financial officer, Scott Sullivan, sold more than $45 million of company stock before he was fired Tuesday for his role in the accounting scam, according to the Washington Service, which tracks insider stock sales.
The list of questionable corporate behavior goes on. Telecommunications giant Global Crossing Ltd. and its top executives were charged with deceptive accounting, with founder and Chairman Gary Winnick cashing out $734 million in stock before the company crashed.
Adelphia Communications Corp., the nation's sixth-largest cable TV company, kept secret billions of dollars in loans and loan guarantees to founder John Rigas and his family. The company filed for bankruptcy protection this week.
And Tyco International Ltd. filed a lawsuit accusing its former general counsel of taking an interest-free $10 million loan from the company without the board's approval and using it to buy a resort home in Park City, Utah.
The examples show that corporate boards haven't been doing their jobs and have lost sight of their obligation to look out for the interests of shareholders, employees and customers, said Paul Lapides, director of Kennesaw State University's Corporate Governance Center in suburban Atlanta.
"Do we reward people for making good, honest decisions, for having good corporate ethics?" he asked. "The evidence is we don't. You won't solve corruption in companies without more people saying this is wrong."
At many companies, corporate loans made to executives are simply forgiven when the executives leave the companies, said Ken Bertsch, director of corporate governance at TIAA-CREF, which has more than $275 billion under management.
TIAA-CREF, which is pushing for rule changes that would require stock options to be listed as company expenses, thinks the recent wave of executive-compensation controversies may push corporate boards to make changes or at least prompt reluctance to approve such generous packages.
"Directors are aware there's a lot of unhappiness about executive compensation," Mr. Bertsch said. "The problem is that the committees were too often rubber-stamping proposals for executive pay that came from management."
No one thinks stock options will go away. But experts say restrictions could be put in place to ensure corporate leaders do what's best for their companies, instead of what's best for themselves.
"Executives and directors should not sell their stock until they leave either the board or the company," said Charles M. Elson, director of the Center for Corporate Governance at the University of Delaware. "The idea to give someone equity is to link them with the company's long-term interests."


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