CEO PAY: Have They No Shame?

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Registered: 03-18-2000
CEO PAY: Have They No Shame?
5
Tue, 04-22-2003 - 12:50pm
Plus they'll benefit from the Bush tax plan.


But the pigs were so clever that they could think of a way round every difficulty.

--George Orwell, Animal Farm

http://www.fortune.com/fortune/ceo/articles/0,15114,443051,00.html


Their performance stank last year, yet most CEOs got paid more than ever. Here's how they're getting away with it.



Who says CEOs don't suffer along with the rest of us? As his company's stock slid 71% last year, one corporate chief saw his compensation fall 12%. Sure, he still earned $82 million, making him the second-highest-paid executive at an S&P 500 company in 2002, according to the 360 proxy statements that had rolled in as of April 9. And yeah, he's under indictment for the wholesale looting of his company, Tyco. But at least Dennis Kozlowski set a better example than the top-paid executive, who pulled in a whopping $136 million. That was Mark Swartz, his former CFO.

Unusual, you might say, for one company to produce the two top earners in a given year. But three of the top six? Now that's truly striking--especially since the other person isn't part of Kozlowski's gang at all. It's Ed Breen, the guy hired to clean up the mess.

You'd think that in the aftermath of a scandal that made Tyco a symbol of cartoonish greed, its board might want to make a point of frugality. Yet even as it was pressuring its former officers to "disgorge" their ill-gotten gains, it was letting its new man, who became CEO last July, gorge himself on $62 million worth of cash, stock, and other prizes. By all accounts Breen is doing a fine job so far (see Exorcism at Tyco), but still. And the gravy train didn't stop there. Tyco's board of directors dished out another $25 million for a new CFO, plus $25 million to a division head, putting them both on a par with the CEOs of Wal-Mart and General Electric. At least the company, now with a new board of directors, seems to recognize the need for some limits: Its bonus scheme "now caps out at 200% of base salary," notes Breen, "whereas before it was more like 600% or 700%."

That, in a nutshell, is what a year of unprecedented uproar and outrage can do. Before, CEOs had a shot at becoming very, very, very rich. Now they're likely to get only very, very rich. More likely, in fact. FORTUNE asked Equilar, an independent provider of compensation data, to analyze CEO compensation at 100 of the largest companies that had filed proxy statements for 2002. Their findings? Average CEO compensation dropped 23% in 2002, to $15.7 million, but that's mostly because the pay of a few mega-earners fell significantly. A more telling number--median compensation, or what the middle-of-the-road CEO earned--actually rose 14%, to $13.2 million. This in a year when the total return of the S&P 500 was down 22.1%.

"The acid test for reform," wrote Warren Buffett in his most recent letter to shareholders, "will be CEO compensation." With most of the results now in, the acid strip is bright red: Corporate reform has failed. Not only does executive pay seem more decoupled from performance than ever, but boards are conveniently changing their definition of "performance." "From a compensation point of view," says Matt Ward, an independent pay consultant, "it's a whole new bag of tricks."

What did fall last year were monster grants of stock options, like the 20 million awarded to Apple's Steve Jobs in 2000. The declining use of options (which even Kozlowski once called a "free ride--a way to earn megabucks in a bull market") would seem cause for reformers to rejoice. But delve more closely into the data for those 100 big companies and what do you find? That every other form of compensation--including some burgeoning forms of stealth wealth--has grown.

Options not paying what they once did? Have some cold, hard cash to make up the difference. Cendant's Henry Silverman got $11 million in salary and bonus, a 41% rise, while Cendant's total stock return fell 47%. Or take Disney's Michael Eisner. After he failed to clear his bonus hurdle two years running, his board lowered the performance bar, and then--hooray!--he finally cleared it. An Olympian effort worth $5 million.

The 5% rise in median salaries and 21% jump in median bonuses was chicken feed, though, compared with the boom in restricted stock. The number of people receiving such grants rose 42%. While awarding shares outright has some advantages over options--they can ease shareholder concerns about dilution and "option overhang"--it also supplants pay-for-performance with what Matt Ward calls "pay-for-attendance."

Even more troubling is stealth wealth. "Deferred compensation" plans, for instance, let executives sock away up to 100% of their salary and bonus in a tax-advantaged account until retirement, often with the addition of a company match and above-market interest. Meanwhile, many pension plans credit executives with decades of unserved "service," even shielding them from creditors in the event of bankruptcy (see The Latest Way to Hide Millions).

Perhaps most striking are the sums to be made at the most troubled firms. After paying huge severance packages to failed chiefs, Sprint and Lucent laid out eye-popping amounts for their would-be saviors. While reflecting the difficulty of luring anyone to a disaster scene, it also shows how much can be made in the comings and goings these days. Michael Capellas, for instance, pulled off the golden parachute and the golden handshake in the same week, collecting $27.8 million just for jumping from Hewlett-Packard to WorldCom. "With CEOs receiving an average of $15 million to start and $16.5 million to finish," notes Paul Hodgson of the Corporate Library, a research firm that advocates boardroom reform, "they hardly need to make any money in between."

While shocking in one sense, these developments are not wholly surprising. For several decades now, CEO pay has been governed by the Law of Unintended Compensation, which holds that any attempt to reduce compensation has the perverse result of increasing it.

• In 1989, Congress tries to cap golden parachutes by imposing an excise tax on payments above 2.99 times base salary. Result: Companies make 2.99 the new minimum and cover any excise tax for execs.

• In 1992, Congress tries to shame CEOs by requiring better disclosure of their pay. Result: CEOs see how much everyone else is making, and then try to get more.

• In 1993, Congress declares salaries over $1 million to be non-tax-exempt. Result: Companies opt for huge stock option grants while upping most salaries to $1 million.

You get the idea. Regulation is a spur to innovation, and in the pay arena innovation always means "more." As executive-pay critic Graef Crystal once put it, "The more troughs a pig feeds from, the fatter it gets."

To see all those troughs in use--and the peculiar doublespeak of the compensation realm--check out the employment contract of Bob Nardelli, the ex-GE man who joined Home Depot in late 2000. (At presstime, Home Depot had not filed the proxy for its 2002 fiscal year.) First comes the "make-whole payment." In Nardelli's case, that entailed reimbursing him for all the goodies he forfeited by leaving General Electric: $50,400 in cash, a $10 million loan, and a stock option grant of 3.5 million shares, a million of which came fully vested. The whole point of forfeiture rules is to induce CEOs to stay put. The whole point of the make-whole payment is to undermine them. It's a virtuous cycle--for the CEOs. In 1999, for instance, Hewlett-Packard made Carly Fiorina "whole" for Lucent options that soon after would have slipped deeply underwater. Says Crystal: "She stepped from one ocean liner to another just as the first one took six torpedoes from the tubes of a submarine."

Another lovely term is the "guaranteed bonus" (bo*nus Something over and above what is normally expected). Nardelli's contract actually calls it the "target bonus," (tar*get A goal to be achieved), but it's the same thing. Even if he drives Home Depot's stock to zero, Nardelli's bonus will be no less than $3 million. His "maximum" bonus may be no less than $4 million--his minimum maximum, in other words. But there is no maximum maximum, because "nothing contained herein shall prevent the committee from paying an annual bonus in excess of the maximum amount." Naturally.

As an incentive to work hard, he also gets annual option grants of no fewer than 450,000 shares.

Home Depot agreed to these terms because it wanted a hotshot executive, and Nardelli--one of three finalists for Jack Welch's corner office--fit the bill. Since Nardelli took over, Home Depot's total return is down 43.4%; in 2002, the stock was the Dow's worst performer. "You can tell the world that Home Depot got more than its money's worth when it got Bob Nardelli," declares Ken Langone, the company's lead director. Still, it's worth asking: What would Nardelli get if the board wanted a regime change?

Again, Nardelli's contract comes to the rescue. Let's say he's fired for "cause." No, wait, that's almost impossible. Because these days "cause" doesn't mean what you think it might. Let's leave Nardelli for a minute and look at 3M CEO James McNerney. In his contract

... cause shall not include any one or more of the following:

(i) bad judgment,

(ii) negligence.

Screwing up, in other words, doesn't qualify. Would a felony conviction do the trick? Maybe. But the employment contracts of three former Kmart CEOs said it must be

... a felony involving moral turpitude or any other felony unless, in the case of such other felony, the Executive (A) acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and (B) had no reasonable cause to believe his conduct was unlawful.

That is, as long as the CEO believed he was acting legally and in Kmart's interests, he could be convicted of drunk driving, possession of counterfeit securities, possession of a sawed-off shotgun, reckless homicide, or "lascivious carriage"--all of which have failed to meet some courts' definition of "moral turpitude." It's a loophole so gaping (and so common) that the CEO could theoretically join the army of a foreign state--Libya, say--and still not get fired for "cause." Which is why, in practice, nobody ever is.

It may seem like semantic hairsplitting, but that one little word makes all the difference. Because getting canned without cause can trigger an Ed McMahon-like payday. Let's go back to Nardelli. Not only would his "incentive" Home Depot stock become instantly convertible to cash, but the company would be forced to award him all new stock grants upon his departure--giving him an incentive to do what, exactly, isn't clear. Then comes $20 million in cash, straight up. By contract, Home Depot will also forgive the balance of and outstanding interest on his $10 million loan. Lest he have to pay income tax on this largess himself, Home Depot will cover the bill with what's called a gross-up payment. And since that payment is itself taxable, there will be a gross-up on the gross-up. Meaning shareholders will pick up the whole gross amount.

All told, Nardelli could walk away with $82 million, estimates the Corporate Library's Hodgson--a figure that doesn't even include his deferred compensation or other benefits.

Those are the provisions spelled out in the contract. But many boards aren't afraid to hand out money willy-nilly. Consider how Texas Instruments couched its comp decision for top execs in its original 2002 proxy: The compensation committee says it followed no specific formula, only "factors it deemed relevant." (By Equilar's calculations, CEO Tom Engibous got $22.7 million while the 2002 shareholder return was -46.2%.) Playing make-believe is another option. Before the 2000 retirement of Engelhard Corp.'s longtime CEO Orin Smith, the board voted that his options should be extended "as if Mr. Smith had not retired."

As nonsensical as all this seems, board members insist there's an elemental logic to it. Everybody knows that (1) a great CEO is the key ingredient to corporate success, and (2) great CEOs are in short supply. Or so the executive recruiters and compensation consultants keep saying. "It's supply and demand," super-headhunter Gerry Roche is fond of remarking. "Everyone says, 'Get me Larry Bossidy.' How many Larry Bossidys do you think there are?"

Well, just one, according to an Internet phonebook search. But that's not the point. A headhunter "gets his gigantic search fees advancing the idea that there are only five or six people in the world who can do this job--and he knows all of them," says Joseph Daniel McCool, editor of Executive Recruiter News. "The shortage of CEOs is a myth." Graef Crystal puts it in Econ 101 terms: "If pay is rising, it's going to be due either to a change in supply or to a change in demand. Has there been a decrease in the supply of CEOs? No. And the business schools are churning out more people every year. Is there an increase in demand? For every company like ITT that splits into three, there are 100 that merge. So if anything, CEO pay should be sinking."

Why, then, isn't it? Because for all CEOs' free-market rhetoric, their pay has less to do with the market's invisible hand than with the invisible handshake. Studies have shown a link between a CEOs' pay and how much the people on their compensation committee make in their day jobs--often as CEOs at other companies. Verizon's Ivan Seidenberg (2002 comp: $22.4 million), for instance, sits on the comp committee for Viacom CEO Sumner Redstone (2002 comp: $39.5 million). "Everybody is stroking everybody else," says Herb Sandler, co-CEO of Golden West Financial, whose comp last year was just $1.3 million. "It's sort of like the Golden Rule gone wrong," says Harvard Business School professor Rakesh Khurana. "CEOs do unto others as they would have them do unto them."

The situation wasn't always so. Up through the 1970s, a chief executive's pay was generally linked to that of his underlings in a geometrically proportional relationship known as the "golden triangle." But soon a new breed of compensation consultant began whispering in CEOs' ears: Look what other chiefs are making. They pointed to a "peer group" and calculated the average pay. Because some of those peers were likely to have supersized salaries, just pegging the CEO's pay to the average usually guaranteed a raise. But nobody's CEO is just "average." One compensation consultant recalls a CEO asking him with a straight face if everyone in his industry was paid at the 75th percentile.

It's easy to laugh. But it is the chase for this mathematical impossibility that leads to what Charles Elson, director of the University of Delaware's Center for Corporate Governance, calls a "closed circulation market that's ever spiraling up."

So how do we break out of this spiral? We could tell boards to grow a spine. We could tell CEOs they're embarrassing themselves. We could tell people to be outraged. But we've done all that--two years ago, ten years ago, 20 years ago. "The irrationalities and excesses ... do not seem easy to eradicate," FORTUNE wrote in a 1982 cover story, "The Madness of Executive Compensation."

We could offer up the latest Rube Goldberg solutions for aligning CEOs' interests with their shareholders'. One proposal making the rounds, indexed options, would reward CEOs only if their stock beat a larger market index. Nifty idea, but ask a CEO to try this on for size: The value of your options, already hard to calculate, will now gyrate with some index, which, by the way, only a third of companies beat. What, no takers?

We could observe that European companies generally pay their CEOs a small fraction of what their U.S. counterparts make, yet don't seem to have any trouble "recruiting and retaining talent." We could point to a number of FORTUNE 500 companies that pay their CEOs moderately and seem to be doing just fine (see table).

We could even mention this year's record 275 shareholder proposals to rein in executive pay. Two of them--at Hewlett-Packard and Tyco--have gotten majority votes. But management is free to ignore those mostly nonbinding resolutions and routinely does.

Nope, it's going to take more than tinkering to reverse a dynamic this powerful. And there's only one way to do it: Address a basic power imbalance. Somewhere along the line, managers--who are, after all, just hired hands--started behaving as if they owned the place. And the real owners--mostly mutual funds and pensions--started behaving as if they didn't. In fact, they voted their shares just as their hired hands told them to. Taking orders from the help might seem humiliating. But then, institutional investors (including the mutual funds you own) don't have to declare the way they vote.

That's changing. A new SEC rule that takes effect in the summer of 2004 will require it. It may seem like just another procedural tinker. But there's reason to hope it could be something more. CEOs have already proved they can't be embarrassed. But maybe owners can be. If so, they might finally provide the counterweight that is so desperately needed--and keep CEOs from stuffing their bellies at the shareholder trough.

Let's hope so. Because until the owners come back, the pigs will be running the farm.




 


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Registered: 03-18-2000
Tue, 04-22-2003 - 12:54pm
CEO Pensions: The Latest Way to Hide Millions.

http://www.fortune.com/fortune/ceo/articles/0,15114,443047,00.html


Think CEO pay is out of control? Wait till you see what these guys get when they retire.


For a brief, shining moment, it looked as if outrage had finally triumphed over excess. Earlier this month, soon after Delta Air Lines disclosed that CEO Leo Mullin had hauled in a bonus of $1.4 million plus $2 million in free stock in 2002, howls of protest from shareholders and employees prompted a dramatic turnabout. After all, in 2002 the airline had lost $1.3 billion, slashed thousands of jobs, and seen its stock price collapse by 58%. Mullin announced that he was voluntarily slicing his $795,000 salary by 25%, giving up the opportunity to receive a bonus in 2003, and forfeiting another $2.4 million in retention payments due him over the next two years. "In the current circumstances," he said in a memorandum to Delta employees, "the steps I am taking feel right to me."

What apparently didn't feel right to Mullin was the notion of trimming his huge pension--a pension that, by the way, he mostly didn't earn. You see, Mullin has been employed by the airline for only five years and eight months. But a special pension plan that Delta's board created for top executives has credited him--shazam!--with another 22 years of service. Thanks to those phantom years, the 60-year-old CEO could walk away from the airline today and be entitled to receive a payout of about $1 million a year, starting at age 65, for the rest of his life. And if the airline goes bankrupt, no problem: Special Delta-funded trusts protect the pensions of Mullin and 32 fellow executives from creditors. "During these very difficult times in the industry, the board decided that they needed to do something to retain qualified executives," explains a Delta spokesperson.

That level of concern doesn't extend beyond Delta's executive suite. Declaring that its retirement expenses were increasing at an "unsustainable rate," the company announced in November that it was phasing out the traditional pension plan for its 56,000 nonunion workers and replacing it with a less costly version, known as a cash balance plan. Benefits experts say the switch could shrink the expected pensions of older workers by as much as half. The typical pension payout of a 50-year-old flight attendant with 20 years of service, for instance, could easily plunge to $15,000 a year.

Witness the latest--and quite possibly the greatest--double standard in the world of compensation. At the same time big companies are taking an ax to the traditional pension plans of the rank and file, they are funneling millions of dollars into what's fast becoming the ultimate pay-for-nonperformance vehicle: the executive pension plan. In this magical land, years are transformed into decades, and the term "shareholder value" doesn't apply.

And don't think pensions are bit players in the grand scheme of executive pay: Using the most conservative actuarial assumptions, the $4.5-million-a-year pension that former Tyco CEO Dennis Kozlowski is now attempting to collect is worth some $50 million in today's dollars. That's $50 million belonging to current Tyco shareholders.

So why, you may wonder, aren't investors up in arms over these jaw-dropping retirement giveaways? The answer is that hardly anybody knows about them. The complex details surrounding executive pensions are typically buried deep within a company's SEC filings, far removed from the salaries, bonuses, and stock options that dominate the headlines. "It's stealth compensation," declares executive-pay expert Graef Crystal.

Blame the SERP. A SERP (supplemental executive-retirement plan) is a steroid-enhanced version of the traditional defined-benefit pension plan, in which a company sets aside a given percentage of an employee's pay every year to produce a guaranteed payout. SERPs are now offered by about half of all big publicly traded companies, usually only to the CEO and the next dozen or so officers. And while the combination of a collapsing stock market and low interest rates have placed pension plans for ordinary Joes in jeopardy--about 40% of big companies that offer company pension plans are now seriously considering cutting benefits, according to a recent survey by accounting firm Deloitte & Touche--that's not the case for top execs. In fact, now that the stock market bubble has burst, compensation experts predict that companies will actually increase their use of SERPs to pick up the slack. "A lot of companies that relied on stock options and equity to provide wealth accumulation are beginning to look for other ways to round out the program," says Ann Costelloe, a senior consultant in the executive-compensation practice of benefits firm Watson Wyatt.

Here's the kicker: SERPs aren't subject to the same restrictions that govern tax-qualified retirement schemes, so corporate boards have free rein to use them to deliver virtually any amount of money to an executive at any time--even if he's on his way out the door. Consider Terrence Murray, who stepped down as CEO of FleetBoston in 2001. Murray had worked at the company for 39 years, and he had already racked up a $2.7-million-a-year pension under his existing SERP. Just months before he retired as CEO, the board amended his plan to include not only salary and bonus toward his pension-eligible compensation but also the value of stock options he had exercised. That flick of the pen boosted Murray's pension to a staggering $5.8 million a year. According to the company's proxy filing, the board's largess was prompted partly to reward Murray for his long track record of success but also by a "review of market practices in this area."

Ah, yes: keeping up with "market practices." Thanks in part to that inexorable force, what Delta did--add years of unearned service to a top exec's pension plan--has become routine. CEOs at scores of companies, including Mike Armstrong at AT&T, Larry Weinbach at Unisys, and Jeff Barbakow at Tenet Healthcare, managed to get the equivalent of years--sometimes decades--of service tacked onto their pensions. Many companies argue that they offer this sweetener to "make whole" a new executive who has accumulated several years of service in his old company's pension plan. But the practice makes a mockery of what pensions are designed to do: reward loyalty. And the shareholders of the companies who hire job-hopping CEOs are left holding the bag.

Not that shareholders are likely to know the true extent of the damage. Companies aren't required to break out the amount they spend on executive pensions in their financial reports. "Companies are just throwing extra money at these top people, and there seems to be no valid explanation why," says Peter Clapman, chief counsel for the $250 billion institutional money manager TIAA-CREF.

Nevertheless, corporate boards seemingly stop at no expense to protect the pensions of their top guns--even as their companies careen toward financial ruin. Scores of big companies, including Motorola, Advanced Micro Devices, and Altria (formerly Philip Morris), have set up special pension trusts similar to Delta's to protect executive nest eggs in the event of bankruptcy. For shareholders, the arrangements carry a big pricetag. That's because when a company puts money into one of the trusts, the executive on the receiving end is taxed. So the company shells out even more money to pay the IRS tab. For instance, when Delta deposited $4.5 million into Mullin's pension trust, it also gave him $3.7 million in tax "gross-up" payments.

Airlines are the biggest offenders. UAL (the parent of United Airlines), for instance, plowed $4.5 million into a pension trust last September for its new CEO, Glenn Tilton, just three months before the airline filed for Chapter 11. At US Airways, Stephen Wolf took his pension in a lump sum of $15 million when he stepped down in March 2002, just six months before the company filed for Chapter 11. (That $15 million included 24 years of service Wolf never performed.) "While thousands of pilots will retire with only a fraction of the pension benefits they earned and expected, airline executives can look forward to retirement knowing that their nest eggs are solid gold," says captain Duane Woerth, president of the Air Line Pilots Association.

Jacked-up executive pensions present yet another danger for the shareholders of any company that offers them: Those guaranteed seven-figure payouts bear absolutely no relation to performance. The only real requirement of the executives who receive SERPs is that they stick around for a while--typically five years or less. Often they don't even have to do that. That's because virtually all employment contracts negotiated by top executives contain clauses that entitle them to receive their pensions in full if they are terminated at any time "without cause."

Hence the $1.6-million-a-year pension being collected by Richard Brown, former chairman and CEO of EDS. He was booted from the company in March after four tumultuous years in which the stock price fell by 62%. Under the terms of his employment contract, Brown would get an additional 16 years of service for pension purposes after he had put in five years' service. But since he was terminated "without cause," he got credited for the 16 years anyway. "He was a much sought-after executive back in 1998, so we had to offer a very competitive package," says Jeff Baum, an EDS spokesperson.

The ever-growing disparity between the retirement nest eggs being built up by executives and by rank-and-file employees is perhaps best personified by John Snow. He stepped down as CEO of CSX in January to become the Bush administration's new Treasury Secretary. Now he is set to rule on a set of pension regulations proposed by the Bushies that would let companies convert their traditional pension plans to the "cash balance" version--the kind that can cut the pensions of older workers by 50%. Meanwhile, he received an extra 19 years of service that he never performed, then cashed out his pension as a lump sum of $33 million. "John Snow's pension benefits are consistent with executives' at FORTUNE 500 companies," says a CSX spokesperson.

And that, of course, is exactly the problem.

 


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iVillage Member
Registered: 03-23-2003
Tue, 04-22-2003 - 4:09pm
Incredible...of course, the fiasco at American Airlines was another example...asking their flight attendants & ground crews to take pay cuts while giving the 'mucky-mucks' a bonus if they stick around. Add all of these 'loopholes' to the 'tax cuts' proposed by the Bush Administration, and you can see why the rich keep getting richer while the rest of us pay through the nose...

iVillage Member
Registered: 03-18-2000
Fri, 03-26-2004 - 6:49am





Jury squabbling at Tyco trial.



Panel calls deliberations 'poisonous,' one juror feels persecuted; judge asks them to soldier on.



Jury deliberations in the Tyco corruption trial erupted in acrimony Thursday, raising the possibility that the panel may fail to reach a verdict in the nearly six-month long trial.


http://money.cnn.com/2004/03/25/news/midcaps/tyco_dispute/index.htm?cnn=yes


"The atmosphere in the jury room has turned poisonous. The jury contends that one member has stopped deliberating in good faith," the jurors said in a note to the judge late Thursday, adding, however, that they still believed they could reach a verdict.




A second note to the judge just 20 minutes later, apparently from the juror singled out in the first note, read, in part: "hey refuse to recognize the right to at least one juror to have a good faith belief that the prosecution has not proved its case that the defendants are guilty.


"Perhaps this jury cannot continue," the later note continued. "What shall we do?"


Manhattan Supreme Court Judge Michael Obus then denied a defense motion for a mistrial and sent the jury home for the day.


"We believe that the right to a fair trial no longer exists, and we want a mistrial," Austin Campriello, a lawyer for ex-Tyco CEO Dennis Kozlowski, told the judge.


After rejecting the motion, the judge told the jury to try to respect each other's opinions, adding he would give them additional instructions Friday.


"Try to relax as much as you can this evening," Obus told the panel of three women and nine men, according to Reuters.


The jury was in its sixth day of deliberations after a highly complex trial that has lasted nearly six months in a New York State court.


Kozlowski and ex-finance chief Mark Swartz are accused of looting Tyco of $600 million in one of the most closely watched of the current corporate fraud cases.


The two are accused of bilking the diversified manufacturer out of $170 million from unauthorized bonuses and personal loans, while another $430 was obtained through dishonest stock sales, according to the charges.


Both defendants have pleaded not guilty to the 32-count indictment on charges of securities fraud, conspiracy, grand larceny and falsifying business records.


Each man faces up to 30 years in a New York state prison if convicted of all charges.


Judge Obus dismissed the first count of the indictment, enterprise corruption, in early March -- one of the most serious charges -- that carries a sentence of up to 25 years.


The prosecution entered some 700 exhibits into evidence and called four dozen witnesses, including several former Tyco directors who denied approving millions of dollars worth of personal loans and bonuses for the former executives.


Prosecutors sought to highlight Kozlowski's lavish lifestyle and spending habits during the trial.


Video clips of a $2 million 40th birthday party that he threw for his second wife, Karen Mayo, in Sardinia, Italy, were shown to the jury. Kozlowski charged Tyco $1 million for the celebration.


Tyco also provided the SEC with a list of Kozlowski's allegedly unauthorized purchases, including the now famous $6,000 shower curtain, a $15,000 umbrella stand and a $445 pincushion.


Kozlowski didn't take the stand during the trial, and Swartz was the only defense witness.

 


Photobucket&nbs

iVillage Member
Registered: 04-16-2003
Fri, 03-26-2004 - 8:19am
I just don't understand why the public, particularly those unemployed, don't get angry about this. My only conclusion is that they don't have a framework in which to place multiple-million dollar salaries. Then when Bush gives them tax breaks as well as loopholes the public doesn't comprehend that either. What's wrong with this country?
iVillage Member
Registered: 04-16-2003
Mon, 04-05-2004 - 3:06pm
Whose getting the shaft, and how long are they going to take it?


We're More Productive. Who Gets the Money?

By BOB HERBERT

Published: April 5, 2004

's like running on a treadmill that keeps increasing its speed. You have to go faster and faster just to stay in place. Or, as a factory worker said many years ago, "You can work 'til you drop dead, but you won't get ahead."

American workers have been remarkably productive in recent years, but they are getting fewer and fewer of the benefits of this increased productivity. While the economy, as measured by the gross domestic product, has been strong for some time now, ordinary workers have gotten little more than the back of the hand from employers who have pocketed an unprecedented share of the cash from this burst of economic growth.

What is happening is nothing short of historic. The American workers' share of the increase in national income since November 2001, the end of the last recession, is the lowest on record. Employers took the money and ran. This is extraordinary, but very few people are talking about it, which tells you something about the hold that corporate interests have on the national conversation.

The situation is summed up in the long, unwieldy but very revealing title of a new study from the Center for Labor Market Studies at Northeastern University: "The Unprecedented Rising Tide of Corporate Profits and the Simultaneous Ebbing of Labor Compensation - Gainers and Losers from the National Economic Recovery in 2002 and 2003."

Andrew Sum, the center's director and lead author of the study, said: "This is the first time we've ever had a case where two years into a recovery, corporate profits got a larger share of the growth of national income than labor did. Normally labor gets about 65 percent and corporate profits about 15 to 18 percent. This time profits got 41 percent and labor got 38 percent."

The study said: "In no other recovery from a post-World War II recession did corporate profits ever account for as much as 20 percent of the growth in national income. And at no time did corporate profits ever increase by a greater amount than labor compensation."

In other words, an awful lot of American workers have been had. Fleeced. Taken to the cleaners.

The recent productivity gains have been widely acknowledged. But workers are not being compensated for this. During the past two years, increases in wages and benefits have been very weak, or nonexistent. And despite the growth of jobs in March that had the Bush crowd dancing in the White House halls last Friday, there has been no net increase in formal payroll employment since the end of the recession. We have lost jobs. There are fewer payroll jobs now than there were when the recession ended in November 2001.

So if employers were not hiring workers, and if they were miserly when it came to increases in wages and benefits for existing employees, what happened to all the money from the strong economic growth?

The study is very clear on this point. The bulk of the gains did not go to workers, "but instead were used to boost profits, lower prices, or increase C.E.O. compensation."

This is a radical transformation of the way the bounty of this country has been distributed since World War II. Workers are being treated more and more like patrons in a rigged casino. They can't win.

Corporate profits go up. The stock market goes up. Executive compensation skyrockets. But workers, for the most part, remain on the treadmill.

When you look at corporate profits versus employee compensation in this recovery, and then compare that, as Mr. Sum and his colleagues did, with the eight previous recoveries since World War II, it's like turning a chart upside down.

The study found that the amount of income growth devoured by corporate profits in this recovery is "historically unprecedented," as is the "low share ... accruing to the nation's workers in the form of labor compensation."

I have to laugh when I hear conservatives complaining about class warfare. They know this terrain better than anyone. They launched the war. They're waging it. And they're winning it.

http://www.nytimes.com/2004/04/05/opinion/05HERB.html