Monday, December 30, 2002

So, the theory behind stock options was that it would tie executive compensation to performance. If anyone still believes that theory it's time to give it up:

By most standards, 2002 has not been a good year for Tenet Healthcare.

The Federal Bureau of Investigation raided one of its hospitals to determine whether two doctors there had performed unnecessary heart surgeries. Medicare officials began scrutinizing the company's billing practices. Tenet badly missed its profit projections, and the Securities and Exchange Commission opened an inquiry into a steep decline in its stock, which closed on Friday at $15.13, more than 60 percent below its level a year ago.

But by another measure ? the paydays for Tenet's top executives ? the past year looks glorious. Jeffrey C. Barbakow, the chief executive, cashed out company stock worth $111 million in January shortly after calling the company's business "sensational" and increasing its profit forecast. Thomas B. Mackey, the chief operating officer, made $16.4 million in stock profits before he resigned in November, after Mr. Barbakow lost confidence in him. Other executives made an additional $12 million selling stock.

Similar contrasts between executive pay and corporate performance are fueling much of the public anger with corporate America. Yet even with business under intense scrutiny in 2002, many executives and board members have continued to cash in the stock options they were awarded as part of their pay, making millions of dollars even while their companies lost much of their value.


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