Investors Seek 'Restatement' of Bonuses

But few others have followed the lead of Turner or Winnick.

"If it's happened, it's not happened very publicly at this point," said Pat McGurn, special counsel at proxy adviser Institutional Shareholder Services.

Part of the problem companies face is a likelihood of a potential legal brawl. Executive contracts are often vague about the financial-performance targets the company needs to hit to trigger bonuses, notes Gary Friedman, who heads the employment law practice in the New York office of Mayer, Brown, Rowe & Maw. Additionally, if executives receive bonuses often enough -- or if the bonuses they receive represent a significant portion of their total pay -- state laws and some courts might hold that the bonuses are really part of executives' normal pay, Friedman said.

"Unless the individual himself is responsible for the misstatement of the profits, I think companies have significant hurdles" in trying to recover bonuses paid for restated periods, Friedman said.

But companies may be reluctant to pursue illegitimate bonuses simply because they are following what they've done in the past, McGurn suggested. Many boards and compensation committees have taken the position that restatements will be factored into future compensation packages, rather than making any attempt to recover past payments, he said.

"I don't think that's good enough," McGurn said. "While the act of making a check out [to repay a bonus] is somewhat symbolic, that's what needs to be done, not some hypothetical haircut [in pay] that they take in the future."

But boards may soon change their ways. New leadership at Nortel and Computer Associates is studying the issue of recovering bonuses from ousted executives.

That should be a no-brainer, said Greg Taxin, CEO of San Francisco-based Glass Lewis.

"Executives that are thrown out of their jobs for cause ought to be forced to repay any compensation that was tied to performance that didn't actually occur," Taxin said. "That seems like the bare minimum starting place."

Meanwhile, the recent upsurge in shareholder activism and proposed rules that would open up corporate proxies to dissenting shareholders could put pressure on directors to go after past payouts and set new rules to make it easier for corporations to recover future bonuses.

Stewart said he would take into account the boards' actions in deciding whether to vote for individual directors at Nortel and Computer Associates, both of which he holds long positions.

"This is something that boards need to consider to be within the four corners of their fiduciary responsibility to shareholders," McGurn said.

Payback's a Glitch: Executives garnered huge rewards for now-tainted results
Restatement/Accounting Irregularity	Response	Executive Bonuses*
Company: Computer Associates
Restated results for 2000 and 2001. The company prematurely booked $2.2 billion in revenue.	Sanjay Kumar resigned as CEO and chairman; former CFO Ira Zar and former vice presidents of finance David Rivard and David Kaplan pleaded guilty to obstruction of justice and securities fraud; company fired nine other employees in its legal and finance departments.	-- Founder Charles Wang received a $4.78 million bonus, $7.17 million worth of restricted stock and 1 million stock options in 2000. He received no such incentive pay in 2001. -- Kumar received a $3.2 million bonus, $4.74 million worth of restricted stock and 750,000 stock options in 2000. He received no such incentive pay in 2001. -- Zar received an $800,000 bonus and 900,000 stock options in 2001. Zar received a $950,000 bonus and 500,000 stock options in 2000.
Company: Nortel
In the process of restating results for 2000 through 2003.	Fired CEO Frank Dunn, CFO Douglas Beatty and Controller Michael Gollogly "for cause."	-- Dunn received a $1.01 million bonus and 12,480 shares of restricted stock in 2000; 2.95 million stock options between 2000 and 2002; reportedly received $5 million in 2003 as part of a "return to profitability" bonus program. -- Other four highest-paid executives received a combined $4.18 million in bonuses and 46,080 shares of restricted stock in 2000; 6.51 million stock options between 2000 and 2002.
Company: HealthSouth
Detected up to $4.6 billion worth of improper accounting entries in its past statements. The misstatements are thought to go back to at least 1996, but may date back further.	Revamped board, brought in new management; former CEO Richard Scrushy has been indicted on charges of securities fraud and conspiracy; more than 12 former executives, including two former CFOs, have pleaded guilty to fraud charges.	-- Scrushy received $24.5 million in bonus pay, 7.35 million stock options and $1.29 million worth of restricted stock between 1996 and 2001. -- Former CFO Michael Martin received $2.75 million worth of bonuses, 1.3 million options and $1.29 million worth of restricted stock between 1996 and 1999. -- Other top executives received at least $8 million in bonus pay, 5.29 million stock options and $5.18 million worth of restricted stock between 1996 and 2001.
Source: Company proxy filings, TheStreet.com. *Nortel has not disclosed executive compensation figures for 2003. HealthSouth has not disclosed its executive compensation figures for 2002 or 2003.