How much is enough? You hear baseball fans ask the question on sports talk radio programs. “Why can't Slugger Pinetar be happy with $4 million a year, instead of $14 million? How can one person even spend $14 million?”
Now we hear similar conversations on financial news shows. Does Jack Welch really need free cut flowers, fancy meals and courtside tickets to the Knicks, courtesy of his former employer General Electric Co.? Did Tyco International Ltd. really need to pay for L. Dennis Kozlowski to have a luxury apartment in Manhattan, plus a variety of extravagant decorations including a $15,000 antique umbrella stand and a $17,100 Venetian traveling toilette box?
Few of us knew who Kozlowski was a year ago, let alone the existence of his traveling toilette box. But the former Tyco chairman and chief executive officer, who resigned June 3, has seen his name become synonymous with corporate greed. Manhattan's district attorney, Tyco and the Securities and Exchange Commission all are pursuing legal action, and Kozlowski is free on $10 million bail.
Those cases may be decided on the simple question: How much is enough? Kozlowski earned $5.65 million in salary and bonuses in 2001, plus $30.4 million in restricted stock awards. Shareholders knew about that package, because it was in Tyco's Jan. 28 proxy. Sounds sweet, right?
Well, Kozlowski had held top positions at Tyco since 1989, so his tenure coincided with an amazing run-up in the company's stock price. Tyco shares shot from about $4.50 per share in 1991 to $60 late last year. The company made a lot of people rich, until the price tanked — today shares are back around $15. By U.S. business standards, Kozlowski deserves to be well-compensated.
But why should Tyco pay half the cost of a $2.1 million birthday party on the Mediterranean island of Sardinia that Kozlowski threw last year for his wife? Or pay to decorate his $18 million Fifth Avenue duplex apartment in New York?
On the surface, the company has no business paying for any of that. But isn't a birthday party a legitimate business expense if the guest list includes customers? How about apartment furnishings when the digs are used to entertain clients?
In the world of the modern corporate executive, it seems that almost any expense can be construed as being work-related. But common sense says that's not right. Welch reluctantly admitted as much last month, when he announced that he would no longer accept some perks from GE.
As Tyco pointed out in a Sept. 17 report to the SEC, the amount of money it is seeking from Kozlowski, $730 million, is very small in comparison with Tyco's total revenues and profit, but it is very large by any other relevant comparison.
The extent of Kozlowski's secret compensation package never would have become public if not for the various criminal and civil cases being pursued against him. Likewise, Welch still would be collecting his perks if not for their disclosure in a nasty divorce case.
Shining a bright light on executive compensation probably will find more cockroaches that would prefer to be left alone.
Tyco and GE both learned the hard way: Compensation at publicly held companies should be fully disclosed. Shareholders will stand for executives being well-paid, but they don't want surprises, and they don't want to pay for perks that are patently ridiculous.