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Enron Paid Some, Not All, Deferred Compensation

By: David Barboza
The New York Times, February 13, 2002

Houston, Feb. 12 -In the weeks before it filed for Chapter 11 bankruptcy protection, Enron allowed a small group of executives to withdraw their money from a deferred compensation program, giving them preferential treatment over some former managers who had also requested early withdrawal, according to former and current executives at the company.

The company paid millions of dollars in deferred salaries and bonuses to midlevel and high-level executives still working in late November, just before the Dec. 2 bankruptcy filing, which forced the company to suspend all such payments. But a number of employees who had retired or recently left the company were denied similar payments.

As a result of the bankruptcy filing, about 400 senior executives and former executives who were part of Enron's deferred compensation program became, according to the rules governing the plans, unsecured creditors of the company. That placed their claims behind those of secured banks and other creditors in the bankruptcy court, leaving them exposed to losing most, if not all, of the money in their accounts.

It is unclear whether top executives like the former chairman, Kenneth L. Lay, withdrew money from the deferred compensation plan just before the collapse. It is also unclear whether Enron violated any rules or laws in making the preferential payments. But some former Enron employees are considering a lawsuit in hopes of recovering millions of dollars in deferred compensation they say they are owed.

In the 1980's and 1990's, Enron, like other corporations, allowed midlevel and high-level employees to save on taxes and build up a larger nest egg for retirement by deferring a portion of salary and annual bonuses in an investment program similar to a 401(k) retirement plan. But unlike a 401(k), the money in the plan remained in company trust accounts and did not belong directly to the executives.

When Enron disclosed its financial troubles late last year, some employees and former employees elected to accept a 10 percent penalty and an immediate tax bill to get their money out of an Enron deferred compensation plan established in 1994. By mid- to late November, however, at least a dozen former employees said they had their requests denied, even as friends and colleagues still working at the company had their requests granted.

Some former Enron executives say that if the company gave current executives preferential treatment over former employees, including retirees who had spent years working at Enron, this is yet another example of how insiders reaped huge rewards and unfair benefits even as the company was collapsing. They also say some of the moves may constitute acting on insider knowledge.

"The fact that payments were made at all means officers inside knew the company was going down," said Dan Ryser, a former high-level executive at Enron who retired in 1993. "It's pretty apparent Enron was not being fair in the treatment of these early withdrawal demands."

Enron officials declined to comment on the deferred compensation withdrawals, referring the case to the bankruptcy court. "Any disputes related to the deferral plans," said Vance Meyer, a company spokesman, "will undoubtedly be resolved in the courts."

But several current executives at Enron said they knew that the company had processed checks for Enron employees ahead of those for former employees. They noted that Enron officials might have been guided by bankruptcy lawyers, who probably argued that paying current employees helped protect the company and its value.

The accusations from former employees are just the latest to hit Enron. Top executives were accused of unloading millions of dollars worth of stock as the company headed into bankruptcy; employees have sued the company for locking them out of their 401(k) retirement plans for "administrative" reasons, even as the stock plummeted in October. And former employees have criticized Enron for paying $55 million in retention bonuses just after the Chapter 11 filing to keep valuable employees.

"They were using my money," Mary Wyatt, a former executive who tried to withdraw from the deferred compensation plan said of the retention bonuses. "I was counting on that money for the next eight years."

Enron had several deferred compensation plans. Its 1994 plan allowed employees to make investment choices and purchase "phantom" Enron stock, which would have tracked the value of Enron shares. Hundreds of employees put substantial bonuses into the plan in recent years.

Mr. Lay and even the Enron board participated in the 1994 deferred compensation plan. In 2000, for instance, Mr. Lay received a salary of $1.3 million and elected to put $300,000 of that into the deferred compensation plan.

Among those unable to withdraw money in November was Charles B. Bowman, 55, a former senior vice president at Enron Facilities Services. Mr. Bowman took early retirement in October 2000 to spend more time golfing and traveling. He says he lost about $750,000 in the deferred compensation plan.

"We earned that money," Mr. Bowman said of the deferred money that he and colleagues are now seeking. "I started saving 15 years ago. I planned for that money. And now that money's gone. It's greed; it's fraud."

The plan was overseen by Greg Whalley, a former president of Enron. Mr. Whalley declined to comment through a spokeswoman. But people close to him say that he made decisions with the consultation of bankruptcy lawyers, and that may be why current employees were favored.

Stephen Pearlman, 41, a former Enron executive who was laid off from the broadband unit in November, said he requested a hardship withdrawal from the plan on Nov. 20, after he learned his wife had breast cancer.

"I filled out the papers and nothing happened," he said. "I lost about $260,000."

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