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CFO Bonuses Bounce Back

Proxies show finance chiefs at big companies got much bigger bonuses last year; small-company CFOs didn't fare so well. Plus: Tyco sues Swartz for $400 million, IPO market dead, and Sears to sell its credit-card business.
David M. Katz, | US
April 4, 2003

The early proxy returns are in. And despite some high-profile accounting scandals, it appears that CFOs made out very well financially last year.

That is, CFOs working for the biggest public companies. According to an analysis by The Todd Organization, an executive-benefits consulting firm, finance chiefs at large public corporations got huge boosts in their bonuses in fiscal 2002.

The gains are indeed impressive. Finance chiefs working for companies with revenues of $5 billion or more got a median bonus increase of 43 percent. And just what was the median bonus? About $362,000. (The average bonus worked out to $180,000.)

In sharp contrast, CFOs at companies in the $250 million-to-$1 billion revenue range were smacked with a 15 percent median drop in their bonuses, with a 28 percent plunge on average. The median bonus at that level was $71,000 ($104,000 on average).

The Todd Organization culled their figures from the proxy statements of 160 public companies with yearly revenues of more than $250 million, and whose fiscal years ended before December 31, 2002.

Overall, the CFOs studied saw an 8 percent hike in their bonuses and a 4 percent rise in salaries at the median. They fared worse in terms of average figures, with a 4 percent drop in bonuses and a 1 percent lift in salaries. The finance chiefs earned a median salary of $270,000 ($285,000 on average) and a median bonus of $115,000 ($180,000 on average).

The difference between the salaries earned by CFOs working for $5 billion-and-up companies and all other finance chiefs is striking. At the biggest companies, finance chiefs earned a median salary of $465,000 ($487,000 on average) in 2002.

In contrast, the median salary for a CFO working for a company in the $1 billion-to-$5 billion revenue range was $285,000 ($309,000 on average). And the median salary for a finance chief at a company that made $250,000 to $1 billion in revenues was $226,000 ($238,000 on average).

Moral of the story? Bigger companies pay bigger salaries.

Echoes of Kozlowski
The catalog of ill-gotten perks that Tyco International reportedly listed in its $400 million lawsuit against former CFO Mark Swartz Wednesday has a familiar ring to it.

The list of items the company alleges Swartz bought with Tyco funds echoes the shopping spree Tyco management claims former CEO Dennis Kozlowksi went on. Kozlowski's alleged list, of course, dwarfs Swartz's in terms of glitter: artwork, antiques, furnishings, movie investments, and a $1 million birthday party in Sardinia.

Swartz's supposed purchases don't seem quite as posh. Tyco management claims he used company money to buy tickets to Miami Heat and Florida Panthers games, cable-TV service, and country club memberships, as well as tickets for Billy Joel and Elton John concerts. The company also claims its former CFO put a $16.5 million apartment in Manhattan on the company tab.

Reportedly Tyco alleges that Swartz stole company funds and conspired with Kozlowski to hide wrongdoing.

In the suit filed in Manhattan federal court, Tyco accused Swartz of breach of fiduciary duty, fraud, and unjust enrichment, among other things. The company is looking to force Swartz to pay compensatory and punitive damages and return all compensation and benefits paid to him during the period of his alleged wrongdoing.

According to Reuters, Tyco is also alleging that Swartz made millions of dollars via the abuse of Tyco loan programs. He allegedly speculated in real estate and investments, and paid Frank Walsh, a former Tyco director, a $20 million fee without letting other directors know about it.

Although he said he hadn't read the complaint, Charles Stillman, Swartz' lawyer, told Reuters that the suit seems to be "no more than a public relations stunt."

Swartz's fall from grace has been so sudden, however, that he could probably use a stunt man. In 2000 he earned nearly $62 million, making him the highest-paid CFO of that year, according to a M. Mercer salary survey. The next year, the then—Tyco CFO placed second in the ranking with $32 million.

Swartz announced his departure from Tyco in August of last year. He had served as the company's finance chief since 1997, having started with the company in 1991. Over the years, he worked closely with Kozlowski on a dizzying string of acquisitions that had some analysts touting the Bermuda-based conglomerate as the next General Electric.

In February Swartz was indicted for tax evasion. In December Tyco reportedly sued both Kozlowski and Swartz, alleging the two improperly made more than $40 million in "short-swing" stock trades. Such trades occur when insiders buy, then sell, company stock within six months.

Swartz and Kozlowski have been indicted in New York state court for allegedly looting $600 million from Tyco through unauthorized pay and fraudulent stock sales. Both have pleaded not guilty to the charges.

No Go on the IPO
Don't look for the dormant initial public offering market to spring back to life any time soon.

Indeed, according to the Washington Post, the number of companies going public dove to a 28-year low last quarter. In fact, there hasn't been an IPO in four weeks. Moreover, no new issues are slated for the next few weeks.

According to the Post, the dollar value of new issues hasn't dropped off this much since the fourth quarter of 1990.

More gloomy details: just five companies have gone public this year, according to the newspaper, which cited figures provided by Dealogic, a corporate-finance data firm. Compare that to overall IPO activity three years ago, when 443 companies went public. In 2001 only 97 companies launched IPOs. Last year that number fell to 86.

That's not to say the companies that have gone public haven't posted OK gains. IPOs launched from October 2002 to March, in fact, have posted an average 3.7 percent first-day gain. As of Monday, they averaged an 8.5 percent boost.

Many of the new offerings are from reinsureds that offer insurers coverage for terrorism, aviation, and professional-liability risk, and assess corporate perils.

Sears's Plastic Wrap
Some analysts were mystified by the recent news that Sears, Roebuck was putting its highly profitable credit-card unit up for sale to stress the retailing side of the business. Why was the company getting rid of its meal ticket?

The numbers seem to suggest that a sale might not be so wise. The retailing giant's credit and financial companies products produced a $1.5 billion operating profit in 2001, according to figures published in the March issue of CFO magazine. That was 69 percent of the company's total operating profit.

Still, things haven't gone so well of late. The credit division's operating income reportedly declined 15 percent in the fourth quarter to $363 million as the company set aside more funds for uncollectables, according to a Bloomberg article. Delinquencies rose to 7.69 percent from 7.58 percent in the previous year's period.

In general, customer-financing operations have roiled balance sheets of late, particularly in the telecom sector. And Sears's use of short-term debt to fund credit-card receivables has worried analysts.

Nevertheless, Bank One Corp. CEO Jamie Dimon is thinking about buying the Sears unit, according to Bloomberg, which quoted an executive at the bank. If Bank One, the third-largest U.S. credit-card issuer, picks up the Sears unit, the bank could close the gap between it and its larger rivals, Citigroup and MBNA Corp. Sears could pull down between $3 billion and $6 billion for the unit, according to some estimates.

If Bank One does the deal, it would be the company's biggest acquisition since Dimon took over as CEO in March 2000. In July 2001, Bank One purchased Wachovia Corp.'s $6.2 billion credit-card unit to gain 2.6 million customer accounts.

Short Take
• Toys "R" Us issued $400 million in 10-year notes on Wednesday, according to Reuters. That's up from the $300 million first planned by the company.