June 17, 2002

Enron Paid Managers $681 Million Even as Firm Slid Toward Collapse

Enron Corp. is expected to report Monday that it paid about $681 million in cash and stock to its 140 senior managers, including at least $67.4 million to former Chairman and Chief Executive Kenneth Lay, in the year up to Dec. 2, 2001 when it filed for bankruptcy-court protection, people familiar with the documents said.

The figures show that Enron's top executives continued to rake in millions even as the stock started its slide in January 2001 when it was still selling for more than $80 a share. Some financial figures have been reported for Enron executives, but this is the first time the company is disclosing the complete compensation for its top managers.

The compensation documents are part of a massive filing Enron is expected to make Monday in the New York federal court handling its Chapter 11 bankruptcy case. The filing will detail $32 billion in payments made to creditors and others in the 90 days prior to the company's December filing, which will be closely scrutinized by creditors, according to two people familiar with the matter.

The latest documents are likely to further enrage shareholders and former employees, many of whom will receive $13,500 maximum in severance payments after being laid off in December. Just last week, former Enron employees struck an agreement that allows them to pursue court action to take back some of the hefty bonuses some Enron executives received before the bankruptcy-court filing.

Recently, Goldman Sachs Group's chairman and chief executive, Henry Paulson Jr., went so far as to suggest new regulations that would require executives to give back proceeds from stock options cashed in the year preceding a bankruptcy.

The latest Enron documents could also help other investigations into Enron's top managers who critics alleged delivered misleading financial information to shareholders to inflate the stock price allowing them to cash in and walk away with millions. Earlier this year, the Justice Department formed a task force to conduct a wide-ranging securities fraud investigation into Enron. The task force has been focused in a large part on the prosecution of Arthur Andersen in its successful obstruction of justice case. With that over, the task force is expected to begin devoting all of its time to the broader investigation.

The $681 million paid to the 140 executives averages about $4.8 million per person. It includes $135 million in restricted stock that vested in 2001, and $240 million in salary and bonuses, says one person familiar with the documents. Additionally, the figure includes stock options, deferred compensation and expenses, among other things.

Former Chief Financial Officer Andrew Fastow brought in $5.6 million in salary and bonus, say people familiar with the filing. This figure doesn't include the $40-plus million he earned since 1999 from his partnerships, LJM Cayman and LJM2, that had lucrative deals with Enron.

Two people familiar with the documents said the company paid Mr. Lay $67.4 million in salary, bonuses and restricted stock from Dec. 2, 2000 through Dec. 2, 2001. That represents a significant portion of his compensation, but doesn't include, among other things, more than $70 million in loans he received from the Houston company in 2001. The 2001 proxy showed Mr. Lay's salary was $1.3 million in 2000, and his bonus was $7 million for that year.

His spokeswoman, Kelly Kimberly, said, Mr. Lay has repaid most of his $70 million in loans. Ms. Kimberly, who hasn't seen the documents, said the figures, "grossly overstate" the amount Mr. Lay "actually realized."

"A significant portion of his compensation was in stock, stock options and long-term incentive and was, therefore, never realized," Ms. Kimberly said.

According to people familiar with the documents, Jeffrey Skilling, former chief executive who resigned in August, received about $40 million. Included in that figure was about $7 million in restricted stock that vested in 2001, and $19 million in stock options that he had exercised, people familiar with the documents say. One person says Mr. Skilling didn't sell any of that $26 million in stock. A spokeswoman for Mr. Skilling couldn't be reached to comment.

Mark Frevert, former chairman and chief executive of Enron Wholesale Services who was vice chairman of Enron in the fall 2001, earned $33.5 million in compensation including stock options and $4.1 million in restricted stock, said one person familiar with the documents. He also received $7 million in payments as part of his living expenses, or expatriate package, from when he lived in London.

J.C. Nickens, a Houston lawyer who represents Mr. Frevert and others, said in a written statement that the financial data is overstated for many of his clients because they held onto their restricted stock. He said it shows that many, like Mr. Frevert, were "believers in the company who chose to hold -- not sell -- substantial portions of their stock, even as the company spiraled toward bankruptcy."

Mark Palmer, an Enron spokesman, declined to comment on the specific numbers.

The amount of money paid out by Enron and its affiliates during this period will be scrutinized closely by the hundreds of Enron creditors attempting to recoup as much as they can through the bankruptcy process. Under bankruptcy law, creditors can attempt to recover a portion of payments made within 90 days of a bankruptcy filing by claiming that such payments represent "preferences" -- that is, money paid out to select parties to the detriment of the overall pool of creditors.

During that 90-day period, bankruptcy law bars debtor companies, under certain circumstances, from channeling money to any lenders, creditors, insiders or others in a way that results in those entities recovering a higher percentage of what is owed them than a company's other creditors eventually do.

Enron's creditors will scrutinize the $32 billion in payments with an eye toward making preference claims, said one person involved in the matter. If creditors prevail on such claims, some of the recipients of payments could be forced to return some of the money to the Enron bankruptcy estate.

The filing will also shed new light on the potential value of creditors' claims against Enron North America, a large Enron affiliate previously considered by creditors to be in better financial shape than its parent. As creditors of various Enron entities attempt to position themselves to maximize their own recovery in the bankruptcy process, fault lines have developed over this issue between creditors of Enron North America and creditors of the parent company. But the filing is expected to show that Enron North America has unsecured claims against it of roughly $20 billion, far higher than previously believed.

Write to Kathryn Kranhold at kathryn.kranhold@wsj.com² and Mitchell Pacelle at mitchell.pacelle@wsj.com³

Updated June 17, 2002 9:28 a.m. EDT