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Ceos pull out 2002 { April 6 2003 } Original Source Link: (May no longer be active)
http://nytimes.com/2003/04/06/business/yourmoney/06SALE.htmlhttp://nytimes.com/2003/04/06/business/yourmoney/06SALE.html
April 6, 2003
Is That Your C.E.O. Cashing Out?
By DAVID LEONHARDT
LEE R. RAYMOND made more money last year than all but a few other chief executives, but nobody would know it by looking at the executive pay table that Exxon Mobil, Mr. Raymond's company, is to publish later this month.
Since the start of 2002, Philip J. Purcell of Morgan Stanley, Frederick W. Smith of FedEx and dozens of other executives also made millions of dollars each that do not appear in the summary of their compensation. And none of their companies were violating the Securities and Exchange Commission's rules about pay disclosure.
All of these executives sold large piles of their companies' shares in 2002, transactions that are obscured from the view of many investors. Even though stock now constitutes the crux of executive pay — as it has for more than a decade — the sale of shares does not appear in companies' annual listing of executive pay.
As a result, pay experts say, the picture of compensation that appears in corporate proxy statements is often incomplete, excluding important information about executives' confidence in their own companies. Stock sales are instead relegated to a document known as the Form 4, which, unlike a company's proxy statement, is usually not available on the Web site of the S.E.C.
"The most significant thing to add to the proxy would be stock sales and purchases," said Ira T. Kay, the director of the compensation practice at Watson Wyatt & Company, which helps companies set pay. "What did they do with the shares? That's always the big thing."
In 2002 and the first part of this year, insiders, who are mainly executives and members of corporate boards, sharply curtailed their selling of company stock for the first time since 1997, according to Thomson Financial, a research company. They sold 1.18 million shares last year, down about 28 percent from both 2000 and 2001.
Insiders, however, were not wildly bullish last year. They increased their buying only modestly — to 542 million shares, up 13 percent from 2001 — suggesting that many executives did not see their own stock as undervalued despite the market's slump.
"People think the worst is over," said Lon Gerber, the director of insider research at Thomson. "But they don't see a catalyst that is going to cause things to turn around."
Even in a slow year for insider selling, some executives did well. Leading the sellers among companies in the Standard & Poor's 100-stock index, Bill Gates, Microsoft's chairman, sold $2.6 billion worth of stock between the start of 2002 and mid-March of this year. Two other Microsoft insiders ranked second and third. Roger A. Enrico, the retired chief executive of PepsiCo who will retire from its board this year, was fourth.
The rest of the top 50 included numerous officials from Microsoft, Goldman Sachs, Lehman Brothers and Morgan Stanley, as well as Gary W. Loveman, the chief of Harrah's Entertainment, and August A. Busch III, chairman of Anheuser-Busch.
Pay experts say stock sales should be considered separately from salary, bonus and other annual executive pay. Executives typically are awarded shares over many years, and sale proceeds are a part of long-term, rather than a single year's, pay.
But the timing of sales and the gains from them are crucial to understanding executives' overall pay, as well as their own estimate of their company's prospects, experts add.
"It's important to know how much executives are dumping," said Judith Fischer, managing director of Executive Compensation Advisory Services, a research company in Alexandria, Va. "It's a significant statement by the executives of their confidence in the company."
At many of the companies that have come under government investigation, executives made millions of dollars selling shares before they began to sink. Richard M. Scrushy, the former chief executive of HealthSouth, for example, made more than $50 million selling HealthSouth stock last year. Since the sales, federal regulators have charged Mr. Scrushy and the company with accounting fraud and HealthSouth's stock has collapsed.
Executives on the list of the S. & P. 100's biggest sellers stressed that they remained confident about the future. In some cases, they were selling shares they owned for years.
Mr. Raymond of Exxon Mobil still owns 2 million shares of company stock, having sold about 800,000 shares since the start of 2002, said Tom Cirigliano, a spokesman.
The Sarbanes-Oxley act, passed by Congress last summer amid a spate of corporate scandals, will make information on insider selling more accessible. But finding the data will still be complicated.
Senior executives and directors already file a Form 4 with the S.E.C. whenever they sell company stock. Investment research companies collect the data and sell it for a fee, sometimes $15 a form, while Yahoo publishes a list — albeit often incomplete — of the trades on the Internet.
Sarbanes-Oxley will require companies to file the forms electronically starting this summer, and the S.E.C. will make the forms available on the Internet. To get a complete picture, however, investors must do much more than read the executive pay section of the proxy. (Proxies list the exercising of stock options, but not whether executives then sold the shares they received.)
INSTITUTIONAL investors are of course following this very closely," Carol Bowie, director of corporate governance at the Investor Responsibility Research Center in Washington, said of insider sales. "The average investor does not have time to get Form 4's or the wherewithal to subscribe to a service that tells them every time there is a transaction."
Shareholder rights advocates and some investors say the omission of sales data from companies' annual statements on executive pay is part of a broader problem with the disclosure of pay and perks. The S.E.C. does not require companies to describe many big portions of an executive's compensation in any company filing, while others must be explained in only a vague way.
Some of these stealth forms of compensation came to light last year when Jane Welch listed them in a court filing as part of her divorce battle with John F. Welch Jr., the former chief executive of General Electric. G.E. had not clearly disclosed the New York Knicks tickets, satellite television service, wine and other perks that Mr. Welch continued to receive after his retirement.
But the sale of stock is certainly the most valuable form of pay that does not appear in the annual proxy.
In 2002, executives and directors at technology companies remained the biggest sellers of stock, as they have been every year since at least 1996, according to Thomson. With more than $200 million in proceeds, not including Mr. Gates's sales, since the start of last year, Microsoft insiders made more money than those at any company, while buying only $137,870 worth of stock. Still, the value of shares sold by technology industry insiders has fallen almost 90 percent since 2000.
The biggest sellers in 2002 tended to work at companies — like Lehman, PepsiCo and Altria (formerly Philip Morris) — whose stocks have outperformed the broad market since the bubble began deflating, based on data from the RiskMetrics Group, a financial analysis company.
But some executives also made millions of dollars despite their companies' woes. Mr. Turner's $52.6 million in sales, for example, came as AOL's stock continued to sink. Insiders at J. P. Morgan and McDonald's also sold large piles of shares.
Perhaps the biggest surprise was the company at which insiders spent the most buying their own stock, often a sign of good times ahead. It was Tyco International, where executives bought $45 million of shares last year before the chief executive at the time, L. Dennis Kozlowski, was indicted on a series of charges that came to include tax evasion, fraud and grand larceny. The stock closed on Friday at $13.19, down almost 60 percent from a year ago.
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