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Now, the $51-Million Severance Question

Pay: Enron's Chapter 11 status may jeopardize compensation for ex-CEO Kenneth Lay.


Ousted Enron Chief Executive Kenneth L. Lay could get a severance package worth at least $25 million--and perhaps exceeding $51 million--although his ability to collect that payday is clouded by the company's Chapter 11 bankruptcy filing.

Lay, who resigned Wednesday under fire, also could get parting gifts that include a lifetime annual pension of nearly $475,000, a $12-million life insurance policy and payment of taxes on any severance pay.

But Lay may never see a dime because, with most of Enron Corp.'s operations tangled in U.S. Bankruptcy Court, he slipped overnight from corporate commander to yet another among the thousands of Enron creditors.

"I would be incredulous if he got any money, and if he did take any money he'd be spending the entire amount on bodyguards," compensation expert Graef Crystal said.

Lay, who received more than $200 million in compensation from Enron since 1999, has been accused of misleading shareholders about Enron's finances as it plunged toward ruin last year.

In his 15 years building Enron from a small pipeline company to the world's largest energy trader, Lay was paid handsomely, and his severance agreement and other benefits reflect that, according to documents on file with the Securities and Exchange Commission.

Exactly how much Lay might receive in severance is only vaguely spelled out in Enron's most recent proxy statement, filed with the SEC in March. Enron representatives declined to clarify the matter and hinted that the payout might not be a sure thing.

"The terms of Mr. Lay's separation are still being determined," Enron spokesman Vance Meyer said.

Three Times His Salary and Bonus, Plus

Lay's severance is based on payments he received in 2000, multiplied by the three full calendar years left on his contract. That means Lay would be entitled to a lump sum of about $25 million, or three times his 2000 salary of $1.3 million and bonus of $7 million.

That $25-million tab would be further swelled by an unspecified "long-term grant value" received in 2000, according to the proxy statement. Compensation experts said that could include the $7.5 million of restricted stock and a $1.2-million cash payment that Lay also received in 2000, which Enron called "long-term compensation."

If that assessment is correct, the total payout would be $51 million.

The SEC filing also said that Lay is entitled to a lifetime pension that would have been valued at $475,042 if Lay, 59, had stayed until 65. In addition, the company said it would pay all taxes on Lay's severance if the IRS rules that the severance package is an "excess parachute payment."

What is more, Lay, as of the end of 2001, owns a $12-million life insurance policy that Enron helped him buy, according to Lay's 1996 employment agreement, also filed with the SEC.

Lay also remains as an Enron director, and they are paid at least $50,000 a year.

Compensation experts said it is unlikely Lay will get his severance package and most of his pension because all preexisting contracts are invalidated by the bankruptcy filing and the fact that Lay technically resigned, rather than being terminated. But the refusal of the company to rule out a severance is "troublesome," Crystal said.

In any event, even as Enron was hiding losses in a murky series of off-the-books partnerships and using questionable accounting on its way to the nation's largest bankruptcy filing, the company served another purpose that nearly was hidden from public view: It effectively was a personal bank for Ken Lay.

The company last year provided Lay with an unusual line of credit of as much as $7.5 million that he used repeatedly, often to help cover soured investments he made elsewhere, his lawyer has said. This despite the fact that Lay has received more than $200 million in compensation from Enron since 1999.

And the collateral securing the line of credit apparently was Lay's own Enron stock, shares of which were showered on him by the thousands either directly or through stock options that were part of his compensation package during Enron's explosive growth in the late 1990s.

Lay typically repaid the credit line with his Enron shares, then would draw down the loan again and repeat the process, Earl Silbert, Lay's lawyer, said. Lay did this on 15 occasions between February and October, just as Enron's collapse was accelerating.

Lay Expected to Face Huge Legal Bills

Lay's apparent financial problems, signaled by his repeated tapping of the credit line, are compounded by the specter of huge personal legal bills facing him. Lay is the subject of more than 50 lawsuits resulting from Enron's financial meltdown, as well as numerous federal investigations.

His credit line is a perk that has surprised several experts in executive compensation, a field already chock-full of various stock options, bonuses and other benefits paid to Corporate America's leaders.

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