Like Enron employees, Lay could lose nearly all
Vast fortune from stocks, bonuses susceptible to lawsuits
By ERIC BERGER
Jan. 24, 2002, 10:13PM
Copyright 2002 Houston Chronicle
As the fortunes of Enron soared in the past decade, so did those of Ken Lay.
He netted nearly $145 million through stock sales alone in that 10 years. In just the past five years, he drew $6 million in salary and received more than $20 million in bonuses.
He also may still be able to claim a $60 million severance package.
But much like the vast majority of the company's employees and shareholders, he could now lose nearly everything.
Virtually all income Lay made as chairman and CEO of the once high-flying Enron is susceptible to civil lawsuits filed by employees whose 401(k) retirement accounts have evaporated, shareholders whose holdings are now worthless and creditors holding loans reduced to a fraction of their face value.
Enron officials have not said whether Lay is eligible for the severance package, but even if he were, it will likely wind up in bankruptcy court along with all other Enron debts.
In essence, Lay could become an unsecured creditor like the shareholders and others who are suing him. In the end, even if Lay got the bonus, he could very well lose it in a lawsuit.
For public relations purposes, however, he probably will turn the bonus down, as he did during the failed Dynegy-Enron merger.
Lay's only income not susceptible to creditors is a pension he would draw as part of his retirement from Enron. Qualified money -- including that in 401(k) plans, IRAs and pensions -- are generally protected assets, said Eli Gottesdiener, lawyer for a group of Enron employees whose retirement plans cratered along with Enron's stock.
But even Lay's annual pension of about $400,000 might be caught up in the company's Chapter 11 bankruptcy. As Enron tries to form a plan to restructure itself, it has said all pensions might have to be frozen.
Company officials did not return phone calls seeking comment on these issues Thursday.
Most of Lay's compensation was in the form of stock options, many of which allowed him to buy stock at about $20 and sell it at market prices, which peaked at $90 and remained as high as $43 as late as August.
According to data provided by Thomson Financial/First Call going back to 1988, Lay sold 2.4 million shares, mostly options, for a profit of $144.7 million.
Yet in recent years, his direct compensation also increased. In the most recent Securities and Exchange Commission filings on the year 2000, he received two large bonuses in addition to his $1.3 million base pay.
The company's Compensation and Management Development Committee awarded Lay a $7 million bonus to make his compensation compatible with other CEOs of "high-performing companies."
He also received a $3.6 million bonus because of the exceptional growth in the company's stock price compared to its peers from 1997 to 2000.
The company also paid a $250,000 premium on Lay's $10 million life insurance policy.
In 2000, he got options to buy 347,830 shares at three prices of $82, $63 and $47. Because the stock is now virtually worthless -- it closed at 45 cents a share Thursday -- those options will do him no good.
Also of little value are the 106,578 shares he owns of restricted stock, which have no option price but cannot be sold for a set number of years. |
