Ex-Trash Execs May Lose Benefits
Four former executives of Waste Management Inc. could lose $23.1 million in severance and stock benefits as part of a proposed settlement of a group of shareholder lawsuits against the company.
The move was highly unusual, compensation experts said, and the amount of money involved significant. Although they wouldn’t speculate about whether the settlement would set a precedent, one expert said it could have an effect on other cases.
“It’s not the first time it’s happened that executives have had to pay back severance benefits, but it’s certainly unusual,” said Nell Minow, editor of Corporate Library, a Web-based directory of executive employment agreements. “This sends a clear message that executives and directors may be held personally accountable.”
Shareholders filed a series of suits in 1999 and 2000 against Houston-based Waste Management, the nation’s biggest trash hauling company. The suits alleged that several Waste Management officers and directors, including former Chief Executive John Drury, who died last year, had failed to properly manage the company following its merger with USA Waste in 1998 and made misleading statements about the company’s financial health.
If accepted by a Delaware judge, the agreement will settle all outstanding derivative claims against Waste Management.
Derivative lawsuits are filed by shareholders on behalf of the company. If the lawsuit is successful, the company receives a settlement that ostensibly benefits all holders of its stock. However, the initial plaintiffs do not receive direct payments.
A hearing on the proposed settlement of the derivative claims will be held Sept. 20 in Delaware Chancery Court in Wilmington, where the suits were filed.
“Since new management came on board at Waste Management, one of our priorities has been to put the issues of the past behind us,” said A. Maurice Myers, Waste Management’s president and chief executive. “This is another important step in realizing that goal.”
Other Waste Management investors pressing claims in federal court in Texas over the executives’ conduct have agreed to be bound by the Delaware settlement if it’s approved by the court, the company said.
Waste Management earlier settled several other lawsuits stemming from a $2.9-billion earnings restatement for a five-year period beginning in 1992. The company’s accountant firm, Andersen, also agreed in June to pay $7 million to settle SEC charges it issued misleading audit reports on Waste Management during that period.
As part of the proposed settlement announced Monday, Waste Management would take the unusual step of canceling $7.6 million in severance payments and $15.5 million in stock benefits to Drury’s estate, as well as to Waste Management’s former President Rodney Proto and former senior vice presidents William Rothrock and David Sutherland-Yoest.
The exact breakdown of how much each executive would lose--and whether any of these individuals would end up writing checks to the company rather than forgoing future payments--was not disclosed. None of the executives named in the settlement could be reached for comment.
The only similar instance cited by compensation experts was a 1998 court ruling that forced executives of Computer Associates Inc., a software company based in Islandia, N.Y., to return more than $263 million in stock that exceeded the limits of the company’s stock compensation plan.
However, shareholder actions aimed at curbing executive pay are becoming more common, experts said. Indeed, mutual fund giant TIAA-CREF recently held a forum on executive pay, concluding that some pay-for-performance plans have gone seriously awry. TIAA-CREF also is increasingly voting against executive stock plans that it considers too dilutive to the ownership stakes of other shareholders.
“Pay and the use of stock options are at the top of our list of issues to deal with companies right now,” said Ken Bertsch, director of corporate governance at TIAA-CREF.
Waste Management, which posted a 2000 loss of $97 million, said it has a series of challenges that could affect its future earnings, including the outcome of the remaining litigation. The company’s stock fell $1.21 to close at $29.59 on the New York Stock Exchange.
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Bloomberg News was used in compiling this report.
