Trials reveal CEO compensation
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| Sun, 02-22-2004 - 10:13am |
By ALEX BERENSON
Published: February 22, 2004
aircuts. Shower curtains. Parking reimbursements. Country club memberships. Use of corporate jets.
Recent criminal and civil court cases involving top executives have brought to the fore an open secret in corporate America: for executives with multimillion-dollar salaries, no company-paid perk is too small — or too big — to accept.
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The details of the personal expenses that executives put on the company tab often are not known because loopholes in federal disclosure rules let publicly traded companies generally avoid disclosing the perks they give executives along with pay and stock options. But the recent trials of Martha Stewart and other executives have revealed the lavish benefits some receive.
During the criminal trial of Ms. Stewart, James Follo, the chief financial officer of Martha Stewart Living Omnimedia, testified that Ms. Stewart had asked the company to reimburse her $17,000 annually for her weekend driver as well as for trips to her hairdresser, coffee and other items.
The trial of L. Dennis Kozlowski and Mark H. Swartz, two former top executives at Tyco International, a manufacturing conglomerate, has revealed that Tyco paid an array of their expenses. The bills included tuition to private schools for Mr. Swartz's three children and $1 million for a birthday party in Sardinia for Mr. Kozlowski's wife. And then there was the infamous $6,000 shower curtain and a $15,000 umbrella stand.
Such extravagances draw criticism from an unlikely combination of corporate watchdog groups and management consultants who create executive pay packages. By avoiding expenses lower-level employees must pay, executives will only worsen the cynicism that ordinary Americans and professional investors have about them, the critics say.
"It just reflects a disconnect from the way that average people live," said Diane Doubleday, a principal at Mercer Human Resource Consulting.
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The average chief executive at a big public company now makes well over $10 million a year, including stock options, almost 20 times the level in 1981 and 500 times the average worker's salary. In that context, perks are a relatively small part of executive compensation, said Joe Bachelder, a lawyer for many chief executives. And companies typically give midlevel executives some extras as well, including reimbursement of their cellphone bills, expense accounts for meals and occasionally company cars. "The real question is perception," Mr. Bachelder said. "It's a question of where you draw the line."
Full text at http://www.nytimes.com/2004/02/22/business/22PERK.html?hp

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Ingrid,
Thanks for your contribution. I agree. I focused on CEOs because their graft if flagrant and there is more news coverage (little as it is.)
I didn't know whether to post this article here or under the Martha S. thread.
This also includes handy hints for the hospitable hostess.
Here goes.........
Miser Martha.
http://www.mercurynews.com/mld/mercurynews/business/8045128.htm
At the close of four weeks of testimony in the Martha Stewart trial, I'm left with one question:
Shouldn't Martha Stewart be brewing her own coffee?
I mean, this is the doyenne of domesticity. But no. Apparently she had her company pop for her joe down at the corner coffeehouse.
Maybe there are bigger fish to fry here. (Did you know that old pantyhose makes a handy grease screen when frying fish?)
Martha is facing serious time. The feds say she lied when they asked why she sold her ImClone Systems stock just before it tanked. Her Martha Stewart Living Omnimedia empire faces ruin. Bad photos of Martha have appeared in national newspapers across the land.
Still, I'm wrestling with the coffee question -- and others related to it.
Maybe you are, too. I mean, what is it with these rich executives? They amass fortunes bigger than many countries and then they refuse to spend a dime. Or maybe $2.25 when it comes to a non-fat latte.
You no doubt heard the testimony that when Martha would go to Starbucks, she'd pay with anything but her bucks.
Yes. The woman expensed coffee. And snacks. (Did you know that crushed Frosted Flakes from the bottom of the box make a yummy pound-cake topping?)
Here is one of the world's richest women. We're talking near Oprah-rich. And she can't buy her own coffee and crullers? (Did you know a dainty rose petal makes the perfect dish for a sugar cube awaiting a cup of coffee?)
And coffee was just the sip of the iceberg. (When using iceberg lettuce, tear the leaves -- don't slice.)
Martha put in for haircuts. She expensed a driver who chauffeured her when she went antiquing. She told an assistant to enter as an expense her $17,000 Mexican vacation. (That's a lot of Mexico.)
``I'm sure there were items in the $200 range that were issues,'' James Follo, chief financial officer of Martha Stewart Living Omnimedia, told the judge in the case.
But why? Why did Martha, a multimillionaire, haggle over nickels and dimes?
We might never know. The judge didn't allow the jury to hear the expensing testimony, which prosecutors believe showed that Martha paid excruciatingly close attention to her finances. The defense wanted to argue that Martha couldn't be bothered with piddling stock deals.
You might file the whole coffee-expensing mystery under ``the rich are different from you and me.'' Even the highly domesticated rich.
But I'll offer another theory -- maybe one Martha's lawyers had at the ready.
Martha Stewart is Martha Stewart Living Omnimedia. What's good for Martha is good for Martha's company. If Martha's hair looks rough around the edges, Omnimedia looks rough around the edges. If Martha, sans caffeine, looks a little sluggish, the company looks a little sluggish. A well-vacationed Martha is a happy Martha. A happy Martha is a happy Omnimedia.
So, think of her coffees, her haircuts, her vacations as a marketing expense.
Would the jury have bought it? I don't know. But Martha's biggest boosters would.
``Please remember to take good care of yourself,'' one wrote in an e-mail posted on www.marthatalks.com, ``Be generous to yourself!''
From the looks of it, Martha has that covered.
February 27, 2004
MARKET PLACE
Court Defeat Costs Black Control of His Press Empire
By FLOYD NORRIS
hen Conrad M. Black was pondering complaints by shareholders who thought he was taking too much money out of the newspaper empire he controlled, the press-baron-turned-historian recalled what he saw as a sad era in history.
"I'm not prepared to re-enact the French Revolutionary renunciation of the rights of nobility," Lord Black wrote in a memorandum to a colleague in the summer of 2002, as he indicated he would resist the shareholders' demands. He was unwilling to give up what he viewed as the "reasonable treatment of the founder-builders-managers."
These are not French revolutionary times, which is just as well for Lord Black. Had officials in those times found anyone's conduct as reprehensible as a Delaware judge found Lord Black's, that person would have faced the guillotine.
Instead, the first legal skirmish in the war between Lord Black and directors who stunned him by showing independence ended with a complete defeat for Lord Black. That means he has effectively lost control of his publishing empire, but it does not determine either who will end up buying it, or its pieces. Nor does it determine how much, if any, money Lord Black owes to other shareholders for the conduct the judge found outrageous.
The judge was Vice Chancellor Leo Strine of Delaware, where most major corporations are incorporated and where Lord Black, in one of the many decisions he must now regret, chose to incorporate Hollinger International.
In the decision released late Thursday, the judge found that Lord Black "has repeatedly behaved in a manner inconsistent with the duty of loyalty he owed to the company."
The judge added that "it became impossible for me to credit" what Lord Black said as a witness when he testified last week. "His explanations of key events and of his own motivations do not have the ring of truth."
Hollinger International owns The Daily Telegraph and The Sunday Telegraph of London, The Chicago Sun-Times and The Jerusalem Post. It also owns personal papers of Franklin D. Roosevelt, for which it paid $8 million while Lord Black was writing a biography of the former president.
Lord Black's personal ownership of Hollinger International is about 15 percent, but because it is held through holding companies and involves super-voting stock, he has controlled an absolute majority of voting rights.
Hollinger Inc., a Canadian company that also has public shareholders, is controlled by Lord Black and in turn had the controlling stake in Hollinger International.
The judge voided an agreement by Lord Black to sell Hollinger Inc., and with it control of Hollinger International, to the Barclay brothers of Britain. He criticized the brothers for acting without "the kind of candor necessary for me to draw the inference of highly honorable conduct that the Barclays' desire."
Shares in Hollinger International rose $1.30 to close at $18.60 on New York Stock Exchange on Friday. Shares of Hollinger Inc., traded in Toronto, rose 10 cents Canadian, to $7.60 Canadian.
Hollinger International is looking for buyers for the company, in whole or in part, and it has retained Lazard, an investment banking firm, to help in the search. The judge found that Lord Black failed to meet his obligations in response to that search, and said he even "suggested an outrageous strategy whereby the Barclays would convince Lazard to betray their clients," or, as the judge put it, "pull a Benedict Arnold."
Benedict Arnold, of course, was the American general during the American Revolution who became a spy for the British. While his name is a curse in the United States, in Lord Black's adopted country Arnold is still honored as a British patriot, a fact the judge did not note.
Under the judge's order, Lord Black will be unable to transfer his voting control to the Barclays or anyone else, meaning that Hollinger International's board appears to have clear sailing to find buyers.
Such a transaction will not, however, be the end of the battle. Hollinger International has sued Lord Black, as well as Hollinger Inc., for damages for taking money from International wrongly and has sought $200 million in damages, an amount that could be doubled with interest. That lawsuit was not before Vice Chancellor Strine, but his decision made it clear that had it been, Lord Black would not have failed well.
The Securities and Exchange Commission is also investigating. Lord Black invoked his Fifth Amendment right against self-incrimination to avoid answering S.E.C. questions.
It is conceivable that if no settlement is reached with Hollinger International, the result could be that Lord Black would realize no money from the sale of the press empire he built. He still could seek to negotiate a deal, but his bargaining position is much weaker than it was before Vice Chancellor Strine issued his decision.
In that decision, he quoted a former Delaware chancellor, William Allen, as saying that the most interesting cases in Delaware corporation law came in cases where everyone involved could claim to have acted in good faith. "Regrettably," Vice Chancellor Strine wrote, "this case is not one of that variety."
http://www.nytimes.com/2004/02/27/business/media/27CND-PLACE.html?hp
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