Corporate Reform.

Corporate reform

What if Congress Had Cracked Down Sooner?

CEOS WHO VOUCHSAFED faulty filings before Sarbanes-Oxley went into
effect should be counting their blessings. The Act upped the personal
stakes. As of July 30, the CEO and CFO of a company that misstates its
financial numbers may have to forfeit any bonus or other incentive- or
equity-based compensation, as well as profits realized from the sale of
shares, during the 12-month period following a misstated filing.

Chief Executive calculated the penalties that some CEOs might have had
to repay, hypothetically, had corporate reform come sooner and had they
been found to be in violation of reform acts.

CEO                          At Risk **

JOE NACCHIO                  Nacchio gained $168 million
Qwest                        from exercising options
Restated 2000 thru 1Q 02*    and $3.5 million in bonuses
Exited  June 2002            Total: $171.5 million



BERNIE EBBERS                Ebbers received $23.5 million
WorldCom                     from exercising options and
Restated 2000 thru 1Q 2002   a $10 million retention bonus.
Exited April 2002            He also received a corporate
                             loan worth more than $366.5
                             million, a transaction now
                             forbidden by Sarbanes-Oxle
                             Total: $33.5 million, plus
                             $366.5 million loan

KEN LAY                      Between 1997 and 2000, Lay received
Enron                        bonuses of $14.5 million and
Restated 1997 thru 2Q 2001   $181.4 million from exercising
Exited January 2002          options. In 2001, he gained
                             a $3.6 million incentive payment
                             for the 1997-2000 period and a
                             1.2 million incentive payment
                             for the 1996 to 1999 period
                             Total: $200.7 million

PAUL ALLAIRE                 Between 1997 and 1999, Allaire
Xerox                        gained $21.5 million from
Restated 1997 thru 2000      exercising options. Bonuses
Exited July 2001             totaled $11 million
                             in 1997, 1998 and 2000.
                             Total: $32.5 million

MARTIN GRASS                 Grass gained a $898,000 bonus in
Rite Aid                     1998 for the previous year's
Restated 1998 thru 2Q 2000*  performance. However, Grass chose
Exited  October 1999         not to exercise his vested, in-the-
                             money options before he resigned,
                             passing up $83.2 million.
                             Total: $898,000

CEO                          Ignominious Endings?

JOE NACCHIO                  Nacchio defended his 2000 earnings
Qwest                        before Qwest's 2001 shareholders'
Restated 2000 thru 1Q 02*    meeting, at which shareholders were
Exited  June 2002            to vote on whether to limit
                             executive pay, saying, "Qwest is
                             about risk and reward."

BERNIE EBBERS                Ebbers used his WorldCom stock as
WorldCom                     collateral to obtain more than
Restated 2000 thru 1Q 2002   $366.5 million of Bank of America
Exited April 2002            for his private ventures In 2001,
                             as the value of the stock dropped,
                             WorldCom' directors agreed to
                             guarantee the loan rather than let
                             the stock be sold on the market.


KEN LAY                      Two-thirds of the compensation earn
Enron                        earned by Enron's top executives
Restated 1997 thru 2Q 2001   came in the form of incentives.
Exited January 2002          That hurt Lay in the period of
                             1994-1997, when Enron just missed
                             targets that would have triggered a
                             bonus; but after 1997, Lay and his
                             team received such bonuses.


PAUL ALLAIRE                 Allaire couldn't seem to stay away.
Xerox                        He resigned in April 1999 and
Restated 1997 thru 2000      returned in May 2000, before
Exited July 2001             leaving again in July 2001.



MARTIN GRASS                 Rite Aid's $1.6 billion restatement
Rite Aid                     in July 2000 was called "the
Restated 1998 thru 2Q 2000*  biggest in history, a record that
Exited  October 1999         Rite Aid held for less than two-
                             and-a-half years. Grass and his
                             team were indicted for fraud in
                             June 2002.

* At press time, Qwest hadn't yet fully determined which periods would
be affected. Rite Aid didn't restate earnings for 1997 as it had
previously announced it would, but earnings information from that year
has been included in these calculations because Rite Aid's 1997
financials are considered unreliable.

** At Risk figures include bonuses and exercised options during the full
years covered by the restatement. The Sarbanes-Oxley Act gives little
guidance on what might be subject to disgorgement. David G. Johnson,
head of Ernst & Young's executive compensation consulting practice,
notes: "These are the easy candidates, but they may be just the
beginning. I would think the spirit of Sarbanes-Oxley would intended
to be broad." The SEC also could seize employer stock contributions to
401(k) plans, dividends from long-term retricted stock or stock-based
payments to a life insurance plan.