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, R-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.