Tyco Exec’s Power to Set Pay Is Disputed

L. Dennis Kozlowski never had the power to set his own compensation or use company loan programs to buy yachts, real estate and jewelry when he ran Tyco International Ltd., a former Tyco director said Thursday at Kozlowski’s corruption trial.

John Fort, a former Tyco director who ran the conglomerate before naming Kozlowski his successor in the early 1990s, testified that Kozlowski’s compensation as chairman had to be approved by a committee of directors.

But Fort also conceded that the rules governing Bermuda-based Tyco allowed for directors to delegate their powers to the firm’s top executive.

“That’s never happened,” Fort said. He stepped down as a director this year, but he continues to serve as an advisor to Tyco’s new board.

Fort also said he never served on Tyco’s compensation committee, which set the pay of top executives.

Kozlowski and Mark Swartz, Tyco’s former finance chief, are on trial in Manhattan for allegedly looting $600 million from the firm through unauthorized pay and loan programs and illicit stock sales. Their attorneys deny those charges, saying the men’s compensation was approved by Tyco directors.

Kozlowski and Swartz are accused of abusing a company loan program designed to pay taxes on vested restricted stock. The goal of the program is to encourage top executives to use company loans to pay their taxes instead of selling company stock, Fort said.

“The purpose of it was only for taxes,” Fort said.

However, Stephen Kaufman, Kozlowski’s defense lawyer, said in his opening statement this week that the “key employee loan program” was not just to pay taxes. He said it had a fourfold purpose, including rewarding employees who had contributed to Tyco’s success.

Defense lawyers also introduced Tyco documents Thursday that show directors may delegate any of their powers to committees of two or more directors, as long as they conform to the directors’ directions, according to Tyco’s bylaws.

Fort said Kozlowski and Swartz, who also served as Tyco directors, could not set each other’s compensation.

Fort also testified that the Tyco board never approved a $20-million payment to former director Frank Walsh, who last year pleaded guilty to defrauding Tyco when it bought CIT Group Inc. and paid some $22 million to settle the charges.

Kozlowski paid Walsh the money without the approval of the full Tyco board, Fort testified.

“We asked Frank to return the money.... He wouldn’t give it back,” Fort testified.