--- Begin Message ---
------------------------ Yahoo! Groups Sponsor ---------------------~-->
<FONT COLOR="#000099">Get your FREE credit report with a FREE CreditCheck
Monitoring Service trial
</FONT><A HREF="http://us.click.yahoo.com/ACHqaB/bQ8CAA/ySSFAA/zgSolB/TM";><B>Click
Here!</B></A>
---------------------------------------------------------------------~->
Please send as far and wide as possible.
Thanks,
Robert Sterling
Editor, The Konformist
http://www.konformist.com
Enron president Jeffrey McMahon (second from right) prepares to
testify before a House subcommittee on Thursday, where he defended
the company's $55 million bonus spree.
Enron's last-minute bonus orgy
Days before filing for bankruptcy, the scandal-ridden company
rewarded some executives with million-dollar bonuses as laid-off
workers were denied severance packages.
- - - - - - - - - - - -
By Jake Tapper
Feb. 8, 2002 | WASHINGTON -- Just days before Enron Corp. declared
bankruptcy on Dec. 2, announcing that it would not abide by severance
payment promises to laid-off employees, the company gave
executives "retention" bonuses totaling more than $55 million,
according to an 11-page list obtained by Salon.
While the bonuses have been the subject of rumor and angry comment in
and out of the company for some time, Salon is the first news
organization to obtain the detailed list. The generous executive
payouts, many of which were handed out on Nov. 30, have led some
former Enron officials to conclude that the company has yet to
abandon its greedy ways. The bonuses were approved by an Enron
management team largely still running the company -- Jeff McMahon,
then Enron's chief financial officer and now the president, and Ray
Bowen, then-treasurer and now CFO. And they were approved after the
departure of the "bad guys" who have been hauled before Congress,
such as former president and chief executive Jeff Skilling and former
chief financial officer Andrew Fastow. McMahon himself received a
bonus of $1.5 million and Bowen got $750,000.
Some former managers expressed dismay about the company handsomely
rewarding its executives just days before reneging on its employee
severance commitment. They also raised questions about the
circumstances in which many of the executives received their lavish
bonuses. Congressional investigators share these concerns.
During Thursday's House Energy and Commerce Committee hearing on the
Enron collapse, Rep. Henry Waxman, D-Calif., asked the chairman of
the committee's oversight arm, Rep. Jim Greenwood, D-Pa., to consider
subpoenaing Enron for the list of retention bonuses, supposedly used
to secure the services of well-performing employees. Combined with an
earlier disbursement of $50 million in bonuses to 75 executives who
worked on the company's doomed merger with Dynegy Inc., the bonuses
are further evidence that Enron was eager to reward those near the
top at the expense of the entire company.
"It adds insult to injury," said Sen. Joseph Lieberman, D-Conn., who
chairs the Senate Governmental Affairs Committee, earlier in the
week. "Enron is still a functioning company. Why they can't find a
way to pay the severance really pains me, especially in light of the
retention bonuses."
Many of the generous retention bonuses were given to executives who
played a role in the fall of Enron's house of cards. At least one of
the recipients was faulted in Enron's internal investigation of its
collapse, the so-called "Powers Report," named for the chairman of
the committee, University of Texas Law School dean William Powers.
The official Enron severance rules state that each eligible ex-
employee is entitled to one week of pay for every $10,000 of salary,
plus one week of pay for each year or partial year of employment, up
to 26 weeks. But the reality has proved to be quite different. Enron
employees laid off before Dec. 2 have been told they have no funds
coming to them. U.S. Bankruptcy Judge Arthur Gonzalez ruled that the
4,500 Enron employees laid off since bankruptcy were entitled to each
receive a $4,500 severance check.
According to one former senior executive, Enron's original severance
package -- subsequently scrapped -- cost $120 million and would have
provided each employee approximately $30,000 in severance on average.
That plan was reduced, then discarded. Instead, at least $105 million
was distributed in executive bonuses. "What I'd like to know is why
the creditors' committee is letting them get away with this," the
former executive asks. "What about this new CEO, Stephen Douglas,
doesn't he need that money to operate? This is outright fraud and
theft." Another Enron source reports that word inside the company is
that members of the creditors' committee received a copy of the
executive bonus list earlier in the week "and they are furious."
Two of the Enron executives who testified before Greenwood's
subcommittee on Thursday are among those who received the generous
gifts -- McMahon, who received $1.5 million, and vice president and
general counsel for corporate development Jordan Mintz, who received
$200,000.
Enron spokesman Mark Palmer has defended the bonuses as standard
operating procedure when a company is trying to retain its talent.
The documents show that Palmer's own bonus was $200,000. He did not
return a Friday call from Salon.
Relying on an in-house e-mail that broadly described the bonuses, the
Houston Chronicle reported in December that 11 Enron executives
received one-quarter of the retention bonuses. The e-mail listed
McMahon; president and chief executive of Enron Americas John
Lavorato, slated for $5 million; chief operating officer of Enron
Americas Louise Kitchen, who received $2 million; and president and
chief executive of Enron Broadband Services Jim Fallon, who like
McMahon received $1.5 million. Approximately 500 employees were
included on the bonus list and their rewards ranged from $2,000 to $5
million apiece.
If the company's strategy was indeed to retain these employees, it
often failed to achieve its objective. Those who received bonuses
agreed to stay with Enron only until the end of February 2002. One
former Enron executive reported that "a lot of these people who took
the money and signed the contracts have either already left the
company -- keeping the money -- or have done nothing but look for and
secure their next job when their contract runs out. A number of them
have been traveling on Enron's expense accounts negotiating their
next job."
John Nowlan, who received a $500,000 retention bonus, has already
negotiated a deal to take his crude/products trading team to
Transammonia, Inc. Gary Hickerson, who received $600,000 for
his "retention," has, according to sources, been working on
developing his own private equity fund. Neither Nowlan nor Hickerson
returned calls for comment. Based on a conversation with Nowlan's
assistant, it wasn't clear that Nowlan still worked at Enron.
Nor did the $5 million bonus that Enron lavished on John Lavorato or
the $2 million awarded Louise Kitchen secure their services. Lavorato
and Kitchen are following Enron's energy-trading component, Enron
Americas, to its new corporate owner, UBS Warburg. Some Enron
insiders argue that since Enron Americas was a valuable commodity it
could sell, thus helping the firm to stay alive, it was important to
keep Lavorato and Kitchen during the transition. But the size of
their bonuses has raised eyebrows.
On Thursday McMahon defended the bonuses. "The notion behind the
retention payments," he said, "was one that if we were to go into
bankruptcy, that these key individuals would remain in the company to
protect the businesses' and assets' value for the creditors."
But their performance during Enron's meltdown casts doubt on some of
these executives' managerial worth. Mark Haedicke, an attorney with
Enron North America, is described in the Powers Report as sitting
back and doing nothing when alarms were sounded about the
controversial shell partnerships blamed for the company's implosion.
Haedicke and ENA's other senior attorney were warned about the
problem in a memo written by employee Stuart Zisman, who stated: "We
have discovered that a majority of the investments being introduced
into the Raptor Structure are bad ones. This is disconcerting
[because] ... it might lead one to believe that the financial books
at Enron are being 'cooked' in order to eliminate a drag on earnings
that would otherwise occur under fair value accounting."
Zisman then met with Haedicke and the other senior attorney to
discuss his concerns. But the two "believed the assertion in Zisman's
memo to be untrue, so they did not take any further action,"
according to the Powers Report. Despite this nonchalance, Haedicke
was compensated with $750,000 in bonuses last November. Haedicke is
also about to leave Enron to work for UBS.
The Powers Report condemns the breakdown in the company's internal
controls, evidenced by the fact that those responsible for making
sure executives adhered to ethical standards -- in-house Enron
attorneys, Enron's law firm Vinson & Elkins, auditor Arthur Andersen
LLP -- obviously did not do so. Things were so bad that attorney
Jordan Mintz even went outside the firm to secretly hire outside
counsel to take an unbiased look at the shell partnerships, as first
reported by Salon.com. In any case, Rex Rogers, the company's deputy
general counsel, received a bonus of $375,000. Rogers was the in-
house attorney responsible for preparing the disclosure documents for
the Securities and Exchange Commission. Enron's SEC documents are one
area in particular that has brought harsh criticism from Congress.
The documents -- Rogers' work, presumably, though he worked with
others at Enron and Vinson & Elkins -- have been slammed for being
purposely obfuscating and for not fully disclosing all relevant
information.
Another group of lucky bonus recipients raising eyebrows among
current and former Enron employees is the team that ran Enron
Broadband Services. EBS was one of the biggest money losers for the
company and has been criticized as being one of the phoniest of
Enron's ventures. It officially died after poor second quarter 2001
reports. This did not stop Enron from awarding EBS's former president
and chief executive, Jim Fallon, a $1.5 million bonus. Other former
senior executives with EBS were also handsomely rewarded with
retention bonuses: Rich Dimichele snagged $800,000; Paul Racicot got
$400,000; Stewart Seeligson was handed $350,000, general counsel W.
Lance Schuler received $300,000; and Rajeev Thapar was gifted with
$250,000.
"People are really upset" about all the money EBS executives were
given, said an Enron source.
Reached by phone on Friday, Seeligson wouldn't answer questions about
his bonus or even respond when asked what his title was when he was
with EBS.
As Salon reported on Jan. 29, Enron attorney Julia Murray cried when
she heard that her friend, ex-vice president Kristina Mordaunt,
turned a $5,800 investment in one of the shell partnerships into $1
million just a few weeks later. Perhaps some of the sting was taken
out for Murray when she received her $200,000 retention bonus.
In Thursday's hearing, Rep. Ed Markey, D-Mass., asked McMahon -- who
was chief financial officer at the time -- about the flurry of
November retention bonuses and merger bonuses. "As CFO, you would
have known that the $100 million was about to be paid out," Markey
said. "Did you also know about the imminent bankruptcy at that time?"
McMahon replied that "the retention payments were something that was
recommended and approved by the board." McMahon was vague about
whether he and other officials knew the company would declare
bankruptcy in a matter of hours. "We knew certainly that the
bankruptcy was one of several options that could occur," he blandly
remarked.
- - - - - - - - - - - -
About the writer
Jake Tapper is Salon's Washington correspondent and the author
of "Down and Dirty: The Plot to Steal the Presidency."
If you are interested in a free subscription to The
Konformist Newswire, please visit:
http://www.eGroups.com/list/konformist
Or, e-mail [EMAIL PROTECTED] with the
subject: "I NEED 2 KONFORM!!!"
(Okay, you can use something else, but it's a kool
catch phrase.)
Visit the Klub Konformist at Yahoo!:
http://clubs.yahoo.com/clubs/klubkonformist
Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
--- End Message ---
