The story of Garrett Dominy and Advanced Technical Products Inc. is, to me, a good example of what's wrong in executive suites.
Dominy, a former president and chief executive of ATP, got an $11 million payout when General Dynamics bought his company in June. After Sept. 11, demand for the company's lightweight composite parts for the military skyrocketed.
Most of us quite rightly would like a nice reward for hard work. What is troubling about ATP, though, is the role that regulators say Dominy and another executive played in a recent accounting fraud scandal at the firm's Alcore subsidiary in 1999 and 2000.
The Securities and Exchange Commission finished its report two months ago. What it said about Dominy, who was chief financial officer at the time, and James Carter, who was chairman, president and chief executive officer, is not what I'd call a portrait of effective management.
The SEC said both men were told about accounting problems at Alcore by a former employee and in several memos from ATP's controller in 1999. But the agency said neither man took definitive action to correct the problems.
“As a result, the company continued to file periodic reports with the commission, and provided documentation to a potential buyer of the company, that included financial statements which ATP's management knew or should have known had a high probability of material misstatement,” the SEC said.
Here's the agency summation: “By failing to take appropriate remedial action in the face of red flags suggesting a failure of internal controls and possible accounting irregularities at Alcore, Carter and Dominy violated [the Securities] Exchange Act.”
Why would they not address it? Regulators don't say, but they note that ATP's merger talks with Veritas Capital Fund LP fell part after the accounting problems came to light.
The earnings restatements were large: In 1998, its profit had to be lowered 30 percent, and in 1999, a $4.9 million profit became a $300,000 loss.
In the end, according to ATP's SEC filings, ATP, Carter and Dominy all argued to the SEC that they shouldn't be prosecuted for breaking securities laws. They have not been charged, although two subordinates in Alcore have.
Dominy walks away from the General Dynamics merger with $11 million and Carter, with more than $8 million. Sound fair?
Of course the executive pay picture is much more complicated than ATP.
The big picture among the publicly held plastics companies we track is that compensation fell in 2001, continuing a slide it's been on since 1998.
The pay of the top 100 dropped to below $1 million for the first time since 1996. In general, pay fell as corporate performance waned in 2001, and many boards cut executive bonuses. Fewer stock options were exercised. There are some exceptions, of course.
Certainly executive pay will be watched more closely, a legacy of recent corporate scandals at Enron, Tyco, WorldCom and others.
One area that is certain to attract more attention is corporate governance. It's a very complex area, but new rules from several stock exchanges are going to make it much tougher for directors to serve on boards and compensation committees if they have other financial relationships with the company, like consulting contracts or business dealings.
One final point worth noting about executive pay: Even as executive pay has been sliding for the past few years, it still has risen much faster than compensation for rank-and-file workers.
Average compensation of the top 100 industry executives has risen 90 percent since we started tracking it in 1993. In that time, the roller-coaster Plastics News stock index has risen 47 percent.
Compensation for production workers in plastics and in general manufacturing, on the other hand, has risen only 25-30 percent in that time, according to figures from the Bureau of Labor Statistics. Some of those figures measure total compensation, similar to what is reported for executives.
It's simplistic, I know. But the figures raise questions about how the rewards of economic growth are shared.
I've never seen a compensation committee present specifics for their company in the reports they file with the SEC, and I doubt I ever will. But it would be enlightening reading.
Steve Toloken is Plastics News' Washington-based staff reporter.