Dana Corp. (NYSE:DCN, OTC:DCNAQ) announced today that it had reached an agreement to provide CEO Mike Burns with $6.75 million in cash and stock if he can meet certain financial goals in the next two years as the company struggles to emerge from bankruptcy. Other company executives are also entitled to over $4.75 million under the newly approved agreement. This news comes after the CEO fought for retention bonuses of $4 million (plus his base salary) if he was able to successfully bring the company out of bankruptcy or sell it off, while fighting to give other CEOs $4.3 million in similar bonuses. However, a judge said that the plan violated a law aimed at preventing executives from taking large bonuses while workers suffer cuts in pay or benefits. Under the new agreement, the bonuses are tied to specific performance objectives that are more stringent than simply bringing the company out of bankruptcy. If the bonuses are not met, then the executives may only receive their base salaries. Mr. Burns had been making as much as $11.7 million in 2004 before receiving a sharp pay cut to $2.2 million when the company declared bankruptcy. A hearing on the latest plan is scheduled for November 21, where creditors, shareholders, unions, retirees, and others will have their input. This is likely to draw some opposition, as it has in the past, because Dana has been long trying to trim health-care benefits for retirees.

Bonus data is out today on executives working on Wall Street and the results are surprising. Compensation at major brokerage houses increased nearly 30% (after a record year last year) to its highest levels ever. This increase is due in part to a surge in M&A activity along with a strong IPO market and continued economic growth in the world's markets. These factors led to record profits reported by the Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns. Private equity and hedge funds also managed to do well with a widened salary range for managing directors of $700,000 to $7 million compared to a range of $1.5 million to $2.5 million just one year ago. There are indications that private equity and hedge funds are making riskier bets with record amounts of cash being poured into the funds, resulting in over $2.9 trillion in takeovers and a surge in loans, according to reports by Bloomberg and Private Equity Intelligence. Whether this activity continues or not remains to be seen; however, there are few signs now to indicate any slowdown in M&A activity by hedge funds and private equity.

Sanjay Kumar, the ex-CEO of CA Incorporated (NYSE:CA), was sentenced today to 12 years in prison and ordered to pay an $8 million fine for his role in the company's $2.2 billion accounting fraud. The primary concern was over the so-called "35-day month" scheme, which consisted of the company keeping its books open past the end of the quarter to realize additional revenue and meet Wall Street expectations. One person, testifying for immunity, also revealed that the company had regularly backdated contracts to manipulate sales - even going so far as to say that within the company, they referred to the practice as "the CA way".

The verdict comes after many years in the court system, tied up after the government agreed to a deferred prosecution agreement in 2004. The agreement soon went sour, however, after the fed discovered the company's executives were destroying evidence and lying to investigators. This led to additional obstruction of justice charges imposed on Kumar and other executives facing conviction. Investigators noted that they were very suprised at the number of senior executives who participated in the scheme or tried to cover it up. As one law enforcement official put it, "nearly every executive listed in the company's 2000 annual report ended up pleading guilty to something in the case".

Mentioned Executives
Sanjay Kumar

After three trials over the course of nearly a decade, U.S. Federal Prosecutors were finally able to put Walter Forbes behind bars after he masterminded one of the largest cases of stock fraud in history back in 1998. A jury found the 63 year old ex-chairman of Cendant guilty of conspiracy and two accounts of submitting false documents to the Securities and Exchange Commission, where he overstated his company's earnings by $250 million. He was acquitted, however, on a forth account of securities fraud. Forbes is currently free on a $1.5 million bond, but will be sentenced on January 17th, facing up to 25 years in prison.

The U.S. Securities and Exchange Commission filed civil charges yesterday against the former CFO and CEO of Delphi along with 11 others, charging them with altering the company's financials between 2000 and 2004. The SEC said that Dawes has agreed to pay around $687,000 to settle with the SEC, while six others took similar deals. The rest of the defendants are fighting the charges.

The problems began last year, when an internal investigation by Delphi's audit committee revealed a series of accounting problems. These problems included improper accounting for $237 million worth of warranty claims to GM as well as several million dollars of debt that could not be found on the company's balance sheet. These accounting misstatements led to an inflated net income number and an artificially higher value (due to less debt appearing on the balance sheet). Typically such misstatements are used to reach financial targets to achieve bonuses or other executive perks. In a press release, current CEO Robert Miller said, "We have cooperated fully with the commission's investigation and will continue to do so. We are pleased to put the SEC investigation behind us and consider this settlement an important step in our transformation process."

Regulation 162(m) is a part of the IRS tax code that restricts tax deductibility of the five highest-paid executives in a public company to $1 million. Bill Clinton was the one who instituted this change in the tax code that was intended to curb executive compensation; however, it had some major flaw - it didn't apply to "performance-based" compensation. This caused the entire plan to backfire as the government and shareholders lost billions more while executives made out with more than ever before.

How did companies get around the regulation? Instead of paying executives the majority of their salary in standard compensation, companies began expensing stock options, LTIPs (long-term incentive plans), perks, and other bonuses that were based on low "performance-based" standards. They passed this by shareholders by tying down these performance metrics to many intangible factors that the company could inflate, such as customer satisfaction, diversity, and customer service. Moreover, they were released in obscure 8K filings with the SEC that normal investors rarely check. And to put the nail in the coffin, neither the SEC nor the IRS evaluate or check over these metrics - so it is impossible to tell if the company is being truthful. Sometimes targets aren't even defined, and in some cases can be as vague as tying compensation to "individual achievement of personal commitments"!

As a result of Reg 162(m), the government has lost out on roughly $20 billion in tax revenues while investors were stuck with extensive share dilution as executive compensation levels skyrocketed yet again to their highest levels ever. In 1980 the average executive earned only 40x what a normal worker would; now, executives make approximately 400x as much as a normal worker! Finally, in September, The Senate Finance Committee acknowledged the fact that they made a mistake, and is now evaluating other possible solutions. Whether or not they will come up with something effective remains to be seen; however, it is becoming increasingly important for investors to watch executive compensation levels.

Google Inc. (NDAQ:GOOG) insiders continue to sell stock at an astonishing rate (according to their Form 4 filings with the SEC), having unloaded nearly $1.7 billion during the past six months alone. Topping the list are Lawrence Page with $312,482,000 in sales along with Eric Schmidt with $290,538,000 in sales, both during just the past six months. There is a debate on Wall Street as to whether or not this kind of selling can be justified as "diversification" or whether it constitutes a negative sentiment on the company - after all, if insiders were confident in their company's future, why would they be selling? Warren Buffet has 99% of his net worth tied into Berkshire, while Bill Gates has the vast majority of his money tied up in Microsoft... why should Google be any different?

The fact is that even after over two years of being public, Google still tops the insider selling list on Wall Street, without a single purchase during recent months. Many maintain that the insiders are merely diversifying their holdings by selling Google stock and buying other companies. In reality, this type of diversification is typically of companies that have recently gone public; however, the selling usually subsides after the first year or so. If we look at Microsoft, Cisco, and other large companies, we can certainly see some spending; however, these companies pale in comparison to Google. Microsoft has only experienced sales of $500,000,000 during the past six months, while Cisco recorded under $100,000,000. While many experts cannot agree what the insider selling means, it would be difficult to argue that they are not significant.

Wouldn't it be interesting to see how a CEOs pay measures up to an average workers'? Well, a report put out by the Economic Policy Institute does just that! The 2005 study found that the CEO of a company making at least $1 billion in annual revenues made $10,982,000, compared to the average workers' $41,861. Amazingly, the average worker made $377 less than the average CEO made in an hour! The study also found that CEO pay increased an amazing 82% between 2000 and 2005, while the average workers' pay declined by 0.3%. This inbalance in pay has caused an uproar in Corporate America, as an increasing number of people question whether or not such large compensation packages are really needed to attract and retain talent.

These people are quick to criticize CEO pay, saying that it is a problem that boils down to basic corporate governance. They acknowledge that CEO pay is determined by the Board of Directors (a group voted in by shareholders); however, in two-thirds of all companies the CEO also serves as Chairman of the Board, which is clearly a conflict of interest. Moreover, the company often has extensive control over who is nominated to the Board of Directors. Only in extreme cases do majority shareholders get a seat on the Board; rather, the Board is most often hand-picked by management. And even if shareholders do wish to nominate other candidates, there are often large costs associated with the proxy process with no guarantees of success.

Who is this hurting? In the end, shareholders are most often left footing the bill. In addition to actual company money being spent on compensation, investors must also deal with the dilution of stock options and grants (often given as incentive). With the recent stock option backdating scandals hitting the market, this issue is being pressed even further. These people suggest that companies should work to tie CEO compensation packages closer to company performance, while also maintaining an independent Board of Directors to eliminate any conflict of interest.

Bristol-Myers Squibb (NYSE:BMY) announced today that CEO Peter Dolan will leave the position of chief executive officer, effective immediately. This announcement stems from the recommendation of a court-appointed monitor to the Board that Mr. Dolan and General Counsel Richard Willard be dismissed from the company because of their failed efforts to protect sales of the company's drug Plavix. This latest accusation is only one in a long string of corporate mishaps for Mr. Dolan and the company's management.

The troubles began in 2005 when the company became embroiled in an accounting scandal. Federal prosecutors were concerned that the company was engaging in an illegal practice known as "channel stuffing" by providing wholesalers with more product than they could sell in order to inflate the company's income and earnings. Since any federal indictments would have caused substancial damages to the company and its shareholders, the government settled the case by making the company promise to keep accurate records from then on and maintain the utmost corporate transparency. In addition, the company was assigned a court-appointed monitor, to make sure the company kept its records squeeky clean.

Meanwhile, investors were furious as the whole ordeal tarnished the company's image. However, it was the events that unfolded afterwards baffled investors and ultimately caused the removal of Peter Dolan as CEO. Recently, the company had been in negotiations to prevent the Canadian company Apotex from producing generic versions of its most popular drug - Plavix. Note that Plavix is the world's second most popular drug with sales of over $4 billion per year - it also accounts for 30% of BMY's revenues. The negotiation involved paying Apotex to halt production of the drug until 2011, when the drugs patents expire. However, BMY inexplicably abandoned its rights to triple damages should its patent prevail at trial. As a result (since Apotex faced no penalties), the market was instantly flooded with generic versions of Plavix. Analysts and investors were shocked and confused, while the company struggled with damage control. Now, federal antitrust prosecutors are investigating the sour deal while the court-appointed monitor recommended the removal of the officers responsible.

Shares of BYM moved higher by nearly 4% on the news today despite the fact that most of the damage had already been done. Now after the company's rollercoaster ride from $26 to $20 back to $24, there is speculation on the street that this may clear the way for a possible buyout. What happens as a result of the investigation remains to be seen; however, this is yet another example of just how illogical management can act.