Shareholder rights groups have long railed against the seemingly excessive compensation packages and retirement perks awarded to high-profile CEOs.
Now, an official of the usually conservative Federal Reserve Bank has lashed out at the over-the-top compensation of some corporate executives.
On Wednesday, Bill McDonough, president of the New York Federal Reserve, took issue with the huge pay packages awarded to U.S. executives during the 1990s bull market. The Fed official went as far as to question the ethical implications of those mega-compensation packages.
Speaking at Trinity Church while marking last year’s terrorist attacks, McDonough said: “the policy of vastly increasing executive compensation was … terribly bad social policy and perhaps even bad morals.”
McDonough then trotted out studies that show the average chief executive made 400 times more than the average production worker. Twenty years ago, that ratio was more like 42-to-1.
In his speech, the Fed banker challenged CEOs and directors of the strongest companies to adjust pay levels “to more reasonable and justifiable levels.”
“Beginning with the strongest companies, CEOs and their boards should simply reach the conclusion that executive pay is excessive and adjust it to more reasonable and justifiable levels,” McDonough asserted.
He went on to ask: “Should there not be both economic and moral limitations on the gaps created by the market-driven reward system?”
McDonough argued that the U.S. business leaders have made a large number of American citizens, and countless more around the world, “question our judgment and/or our ethics.”
As he sees it, that questioning stems mostly from outrage over inflated levels of executive pay. “It is hard to find somebody more convinced than I of the superiority of the American economic system,” he said. “But I can find nothing in economic theory that justifies this development.”
While McDonough was criticizing excessive executive compensation, management at Adelphia Communications Corp. was doing its part to lower it’s payout to senior managers.
On Wednesday, the bankrupt cable company announced it will not pay former Chief Executive Officer John Rigas $4.2 million cash severance package over three years. This, according to Bloomberg, citing people familiar with the matter.
Reportedly, the company’s current management said it made the controversial decision after the Justice Department filed fraud charges against Rigas.
Rigas’ pay package includes a provision that terminates the agreement should he be convicted of a felony, according to a regulatory filing.
While not in Jack Welch’s league, the perks for Adlephia’s former CEO were substantial. According to an SEC filing, Rigas was promised office equipment, a fulltime secretary, use of the company’s jets in an emergency, and health-care coverage for him and his wife for the remainder of their lives.
Adelphia’s decision to rescind those niceties comes several days after published reports detailed the perks awarded to former General Electric chairman Welch.
As CFO.com reported on Monday, divorce papers filed by Welch’s wife claim that GE supplies its ex-boss with plenty of the finer things in life.
The luxury list reportedly includes a Manhattan apartment, floor-level seats to the New York Knicks, courtside seats at the U.S. Open tennis tournament, V.I.P seating at Wimbledon, a box at the Metropolitan Opera, a box at Boston Red Sox games, a box at New York Yankee games, four country club fees, limousine service while traveling, and free dining at the highly-rated restaurant Jean Georges.
Other former top corporate executives are receiving swell retirement packages as well.
John H. Bryan, Sara Lee’s former chief executive, for instance, was promised a car and driver through 2008, office space through 2009, and two administrative assistants through 2011. He also has a consulting agreement with Sara Lee that runs through 2009.
AOL Time Warner is paying former CEO Gerald M. Levin $1 million a year and providing him with office space in or near AOL’s Rockefeller Center corporate offices. This, according to a published account, citing a report by the Corporate Library, a corporate-governance watchdog group.
And Hugh L. McColl Jr., the former chairman and CEO of Bank of America, gets free office space, administrative support, and the use of a company plane for 150 hours a year, according to a report that cites Executive Compensation Advisory Services, a research company in Alexandria, Va.
Meanwhile, in a related story: WorldCom’s board is reportedly considering rescinding a severance package promised to ex-CEO Bernard Ebbers. Ebbers’ deal? WorldCom had promised to pay the company founder a $1.5 million lifetime annual pension — and to provide him with a staggering $408 million loan.
Speaking in Code
So why did senior vice president of corporate finance Michael DeGennaro recently leave Symbol Technologies?
The answer to that question is turning into something of a corporate soap opera.
Here are the details to date:
On Tuesday, Long Island’s Newsday reported that an executive at Symbol Technologies — the bar code company — told a Wall Street analyst that DeGennaro left last week to “tend to personal matters.”
Nothing surprising there. Explaining that a senior manager has left a company for “personal reasons” or “to pursue other interests” is boiler-plate copy when an employee doesn’t necessarily leave under the best of circumstances.
At the time of the announcement, analyst Reik Read of Robert W. Baird & Co. told the paper that “DeGennaro’s departure probably leaves a gap in the financial staff at Symbol.”
Then, on Wednesday, Symbol spokeswoman Nancy Tully told Reuters that the company “doesn’t comment on personal matters.”
But later that day, Symbol management fired off a press release, stating: “In response to published reports, Symbol Technologies, Inc. today reiterated its corporate policy of not commenting on personnel matters. The company’s statement was made in regard to the departure from the company of Michael DeGennaro, former senior vice president of corporate finance. Any comment regarding reasons for DeGennaro’s departure attributed to a company official was unauthorized and is hereby withdrawn.”
Now, bear in mind that on Aug. 13 Symbol’s top executives, chief executive officer Richard Bravman and senior vice president and chief financial officer Kenneth V. Jaeggi, certified the company’s financial results.
The same day, Symbol management indicated that the SEC is investigating the timing and amount of revenue the company recognized from January 2000 to December 2001. It added that it may wind up restating its results.
On Aug. 23, analyst Read downgraded Symbol’s stock rating after the SEC failed to clear the company’s certification statements.
(Editor’s note: Compare cost management at Symbol Technologies and its peers with the CFO PeerMetrix interactive scorecards.)
Pre-Paid’s Legal Trouble
Pre-Paid Legal Services Inc. has been reported to the SEC for not disclosing it paid more than $30,000 to a magazine that subsequently recommended its stock, according to The New York Post.
Reportedly, Pre-Paid received a recommendation from Robert Flaherty, editor and publisher of Equities magazine, in an interview Flaherty did with Forbes.com on Sept. 3.
Afterwards, Pre-Paid issued a press release stating that journalist Flaherty had shared his tips on stock picks that he feels have good potential for investors.
“Flaherty likes to try and counteract what he calls ‘abusive short-sellers,’ when he makes his picks,” Pre-Paid’s management noted in the press release.
What the company did not note in the release is that it reportedly paid more than $30,000 to Flaherty’s publication.
The Post also reported Monday that New York State Attorney General Eliot Spitzer had complaints about Pre-Paid.
Short Takes: Tyco Up, Goldman Out, Ganley Jailed
- The share price of Tyco International stock jumped nearly 12 percent Wednesday to close at $17.80 after the company announcing it had hired David FitzPatrick its new CFO. To read more about FitzPatrick’s hiring, see “Cadillac Man: Tyco Hires CFO”.
- The California Public Employee Retirement System (CalPERS), the nation’s largest public pension fund, fired Goldman Sachs as fund manager for $663 million in investments. The reason for the firing? According to marketwatch.com, the Goldman Sachs-managed fund failed to meet CalPERS’ performance benchmark over a four-year period.
- Former Critical Path vice president Timothy Ganley was sentenced to six months in federal prison for insider trades he made related to a scheme to inflate revenue. He’s the first former executive at the E-mail software company to be sentenced for the charges. Three other former managers at the company also face criminal charges. Shares of Critical Path traded as high as $116.75 in March 1999.
- Although corporate bond underwriting is staging a strong recovery of late, Moody’s said the supply of new speculative issues has been fairly thin. “The upside potential for corporate bond issuance has been curbed by a diminished need for credit stemming from the protracted slumps affecting both capital spending and acquisitions,” Moody’s noted in a report.
- Dick’s Sporting Goods on Wednesday announced plans to sell 8.4 million shares at between $14 to $18 a share in an initial public offering. The company, which operates 132 stores in 24 states, is backed by Vulcan Ventures, an investment vehicle for Microsoft Corp. co-founder and billionaire Paul Allen. In the IPO, the company is selling 4.2 million shares and insiders are selling another 4.2 million.