Companies Rarely Get Back Bonuses from Ex-CEOs

Large companies almost never get back the bonuses they paid to CEOs who used questionable methods to earn them, a new survey says.

The New York Times reported that 414 companies restated earnings in 2004 alone, but a review of the restatements shows that large corporations rarely get bonus money back from executives, even when the bonuses were based on numbers that were questionable, inflated or inaccurate.

For example, William A. Wise, former chief executive of a Houston energy company called the El Paso Corporation, received a $3.4 million bonus, among other rewards, when the company reported a $93 million profit in 2001. Last year, the company reported that the company actually lost $447 million in 2001, and that "certain personnel used aggressive, and at times, unsupportable methods to book proved" oil and gas reserves, the Times reported.

Wise and many others who earned bonuses for meeting fake performance goals, will not be returning the money.

Investors had hoped corporate reform legislation would help them recoup some of their losses from executives who grew rich on stock prices inflated by incorrect earnings reports. But that hasn't happened.

The Sarbanes-Oxley Act requires chief executives and chief financial officers to pay back bonuses if they were based on incorrect numbers. In addition, the payback is required if there is an accounting restatement and evidence of misconduct. So far regulators have not enforced the provision, in part because the law took effect only in July 2002, the newspaper reported.

Lawyers said other reasons for failing to go after the bonuses could be the fear of bad publicity, the cost of litigation or contracts that let CEOs keep compensation once their checks have cleared.

"The employment contracts don't have the necessary clauses in them to give the board the power to go draw that back, and that's something that boards really need to change," said Lynn E. Turner, a former chief accountant at the Securities and Exchange Commission who now oversees research at Glass Lewis & Company, which compiled the list of restatements for the New York Times.

Turner said executives given bonuses based on data that turn out to be wrong should voluntarily return the money.

"I just think that morally, if the bonuses should never have been paid out to that group, then that group shouldn't get to keep any of it, regardless of the law," he said.

SEC Commissioner Harvey J. Goldschmid said the agency would try to recover more than bonuses from executives who gain from fraud. "Where hard-core fraud is involved, senior executives will have to disgorge all of their compensation," he said. "We'll ask for everything."

You may like these other stories...

A proposal issued by the Governmental Accounting Standards Board (GASB) last week explains how fair value measurement should be defined for state and local government financial reporting.The exposure draft, Fair Value...
By Jason Bramwell The board of trustees of the Financial Accounting Foundation (FAF) finalized a new policy on November 19 that provides the Governmental Accounting Standards Board (GASB) with direction on what...
By Jason Bramwell The Governmental Accounting Standards Board (GASB) is now offering a free online toolkit designed to assist preparers and auditors of state and local government pension plans with implementing new...

Upcoming CPE Webinars

Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.
Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.