More Big Pay Packages at the Big Board

Compensation for top managers could total more than $125 million, says the NYSE. Also: Quattrone admits role in IPO allocation; many unprepared for Sarbox deadlines; CFOs say big hurdles include budgets, visibility, strategy execution; and more.


Late Friday, at the start of the holiday weekend, the New York Stock Exchange disclosed compensation figures for its 23-member senior-management team.

Less than a month after details about Richard Grasso’s $188 million compensation package led to his resignation as the NYSE’s chairman and CEO, the exchange reported that co-presidents Catherine Kinney and Robert Britz each took home about $2.7 million in salary and bonuses in 2002. Each also stands to receive at least $22 million upon retirement, according to Reuters.

The NYSE added that compensation arrangements for the entire 23-member senior management team, which were approved by Grasso and the boards compensation committee, could exceed $125 million, reported Reuters.

The exchange revealed the salaries of its top six executives. In addition to Kinney and Britz, they are:

  • William Johnston, a senior adviser, who earned more than $1.25 million in 2002 and is entitled to a $6.8 million retirement payout.
  • Edward Kwalwasser, an executive vice president, who earned $1.38 million and is entitled to a $7.7 million payout.
  • Richard Bernard, an executive vice president, who earned $1.5 million and is entitled to a $4.8 million payout.
  • Richard Edgar, an executive vice president, who earned $1.11 million and is entitled to a $9.2 million payout.

James Rutledge, an NYSE member since 1973, said the Britz and Kinney figures were “pretty much within the parameters of what we expected,” according to Reuters, but the other four senior executives “caught me by surprise.”

Critics pounced on the news. “It’s clear that the exchange has benchmarked itself against the financial industry in general, because these levels of pay are what you expect to find perhaps at the largest financial corporations,” said Espen Eckbo, founding director of the Center for Corporate Governance at Dartmouth College, according to Reuters.

Interim NYSE chairman John Reed announced plans to modify some features of pension and capital plans for individuals, beginning in 2004. Without providing further details, Reed added that executive pay must reflect the need to “have the very best management.”

Neither Britz, a 30-year veteran of the exchange, nor Kinney, a 28-year veteran, was available for comment, reported Reuters.

Quattrone Concedes Role in IPO Allocation

Frank Quattrone, the former star banker at Credit Suisse First Boston, admitted on Friday that he played a role in allocating shares of initial public offerings to the investment bank’s clients.

Quattrone, who has been charged with obstruction of justice and witness tampering, conceded under cross-examination by Assistant U.S. Attorney Steven Peikin that “it is possible I looked at partial lists of allocations before final decisions were made,” according to Reuters.

“I might have taken part in some discussions,” Quattrone also reportedly noted in testimony. “I did not make any decisions.”

Still, the comments dealt a blow to the defense argument that Quattrone had nothing to do with how initial public offerings were allocated at CSFB. Quattrone attested earlier in his trial that neither he nor his employees had records on the allocation process.

Peikin, however, used a series of E-mail and other internal documents from CSFB to show jurors that Quattrone was closely involved in the allocation of hot stock offerings, Reuters reported. In one E-mail exchange between Quattrone and Dell Inc. CEO Michael Dell, Quattrone told Dell that he knew the executive was “personally interested” in one hot stock offering and said that he could allocate some shares if needed.

In another E-mail, according to Reuters, Quattrone told a fellow CSFB executive that he would like to meet “and discuss IPO allocations past and future.”

The trial is focused particularly on a December 2000 E-mail message that Quattrone sent to subordinates, backing a top deputy’s instruction for them to “clean up” their files. Prosecutors allege this message was sent to block investigations into CSFB’s IPO practices by the Securities and Exchange Commission and a federal grand jury in late 2000.

Quattrone testified earlier in the day under direct examination, according to Reuters, that he never intended to obstruct justice in late 2000 when he forwarded the “clean up” memo. “In my mind, there was no relevance whatsoever about what was in the investment banking files and what the investigation was about,” he said.

Many Unprepared for Sarbox Deadlines

More than a year after the passage of Sarbanes-Oxley, many companies are not nearly as prepared as they should be to implement many provisions of the landmark act.

“Companies are running out of time to refine their financial operations to meet accelerated filing deadlines with the Securities and Exchange Commission,” notes Parson Consulting, a financial management consultancy.

In 2004, annual reports must be filed with the SEC within 75 days of fiscal year-end, 15 days sooner than the current deadline. Quarterly reports must be filed within 40 days of the quarter’s end, 5 days sooner than the current deadline. Eventually the deadlines will further contract, to 60 days for annual reports and 35 days for quarterly filings.

A Parson study of 2003 second-quarter results, however, found that more than 60 percent of S&P 500 companies aren’t yet meeting the 40-day quarterly filing deadline. In addition, Parson reported, more than 51 percent of the S&P 500 need to accelerate their financial reporting to meet the 75-day deadline for annual reports.

CFOs Say Big Hurdles Include Budgets, Visibility, Strategy Execution

Little surprise, then, that financial professionals are becoming more and more anxious and frustrated as the demands on their time increase just when their activities are being more intensely scrutinized.

In a survey of more than 300 financial executives from large companies, Cap Gemini Ernst & Young and CFO Research Services (a unit of CFO Publishing Corp.) more than one-third said that it has become very difficult or nearly impossible to secure the budget they need to make major changes in their finance function.

As a consequence, the survey pointed out, only about one-quarter of respondents were “very satisfied” or “completely satisfied” with their visibility into the key performance drivers that enable them to forecast trends in their business. And only 20 percent of survey participants said that they can currently measure and influence strategy execution at their company.

In addition, 66 percent of respondents conceded that when their companies disclose material changes to their financial condition, they require more than two days — which exceeds the limit imposed Section 409 of Sarbanes-Oxley. (Section 409, which mandates real-time reporting of significant events, has not yet been implemented.)

Other findings:

  • 69 percent have financial sign-off below the CFO level; 81 percent plan to have this in place in 18 months.
  • 56 percent currently assess their company’s compliance with the new regulations; 80 percent expect to have this in place in 18 months.
  • 52 percent currently plan to monitor/improve controls throughout the year; 88 percent expect to do this in 18 months.
  • 57 percent said they align forecast responsibility at the level of control and accountability; 80 percent plan to do this in 18 months.
  • 55 percent said they currently develop rolling forecasts; 81 percent expect to have this in place in 18 months.

Other big priorities for 18 months out include upgrading business performance management processes and software, and improving driver-based forecasting models.

Taubman Centers Fends Off a Hostile Bid, with a Little Help

What do you do if you’re having trouble fending off a hostile takeover?

Call your friends for help.

That’s what the folks apparently did at Taubman Centers Inc., a real estate investment trust based in Bloomfield Hills, Michigan. For about 11 months, the upscale shopping-center chain has been resisting a $1.74 billion offer from mall operators Simon Property Group Inc. and Westfield America Trust.

Taubman Centers — headed by 79-year-old socialite A. Alfred Taubman, a former chairman of auction house Sotheby’s and a highly regarded philanthropist in Michigan — enlisted help from various friendly entities to oppose the bid. The company’s efforts, however, triggered a little-known clause in Michigan anti-takeover law, according to Reuters.

Simon Property sued Taubman Centers, and seemed headed to victory when a federal judge agreed that the Taubmans needed public shareholder support before voting their controlling shares against the takeover, explained the wire service. The Taubmans and friends own 33.6 percent of the total outstanding shares; two-thirds support is needed for a takeover bid to succeed.

However, the Taubmans urged state legislators to pass a bill, which was signed into law last week, that they say clarified the takeover law. The new legislation overruled the judge and allowed the family to vote its shares to block the deal, according to published accounts.

This fight is not over yet, however. Simon and Westfield have nominated a slate of four directors to the Taubman Centers board. Taubman, in turn, has postponed setting a date for its annual meeting, which it usually holds in May. Even if the Simon-Westfield slate wins, those companies will need at least another year to win enough seats to take control of the company.

Accountant Sought for Scrutiny of Fannie Mae

The Office of Federal Housing Enterprise Oversight (OFHEO) issued arequest for proposals from companies wishing to review accounting policies and practices at the mortgage finance company Fannie Mae “to supplement OFHEO expertise in planning and completing the review.”

“The special review would independently evaluate the accounting policies at Fannie Mae and examine whether their implementation is resulting in a high level of conformance to GAAP,” OFHEO director Armando Falcon Jr. said during July testimony before the Senate Banking Committee.

The review will be divided into two phases: a review of policies, practices and internal controls, followed by a comprehensive study of any questionable policies and transactions that may be identified by the contractor or OFHEO.

Interested parties have until November 10, 2003, to submit proposals.

Although OFHEO has said it has no reason to believe Fannie Mae has engaged in inappropriate accounting practices, the agency has added that it would probe the company after its sibling, Freddie Mac became mired in an accounting scandal.

More Momentum for Economic Recovery

In the most recent week for which data is available, the number of Americans filing for unemployment benefits fell to the lowest level in more than eight months, suggesting that companies may finally be easing up on layoffs. Even the four-week moving average fell to the lowest level since February.

Meanwhile, chief executives’ confidence in the economy continues to surge. The Conference Board’s survey of about 100 CEOs reported a reading that was much higher at the end of the September quarter than at the close of the previous quarter.

In addition, nearly 36 percent of survey participants said conditions have improved, compared with nearly 33 percent in the previous survey.

And in a survey of owners of small and midsized businesses commissioned by The PNC Financial Services Group, more than 80 percent said they are optimistic about their company’s prospects for the rest of 2003, and nearly 20 percent expect to expand their workforce.

Survey respondents are even more optimistic within PNC’s primary five-state region — Delaware, Kentucky, New Jersey, Ohio, and Pennsylvania — Nearly 90 percent of owners in the region are optimistic about their prospects, and 23 percent expect to expand their workforce.

“Evidence is accumulating that the national economy is taking a turn for the better at a slow and steady pace,” said James E. Rohr, chairman and chief executive officer of PNC. “The results of our most recent survey reflect a positive mood among business owners who foresee improving prospects for their own business and local economy for the rest of this year and into 2004.”

(For the flip side of the coin, see CFO magazine’s October feature “Proceed with Caution.”)

Short Take

The insider-trading scandal involving former ImClone Systems Inc. chief executive Samuel Waksal and Martha Stewart has reportedly widened to include Waksal’s father and sister. On Friday the SEC added Jack Waksal as a defendant to a civil complaint filed earlier against his son. The amended complaint also reportedly names Samuel Waksal’s sister Patti as a relief defendant; she apparently did not break the law but benefited from illegal actions of her father.

The suit, according to Reuters, charges that Jack Waksal sold ImClone shares belonging to himself and his daughter for about $8 million, shortly before the share price plunged on bad news about the experimental cancer treatment drug Erbitux. The SEC said that the senior Waksal had been tipped off by his son.

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