CA executive bonuses return to haunt It
Fatter than the fattest fat cat
Computer Associates International Inc has denied that three of its executives, and a $1bn stock compensation they received in 1998, are the focus of ongoing federal investigations into its accounting practices.
The Islandia, New York-based company was responding to a report in the Wall Street Journal, which states that preliminary investigations of CA's accounting by the US Attorney's Office and the Security and Exchange Commission are focused on whether the company improperly boosted financial results during 1998 so that three of its top executives could reap over $1bn in stock awards.
The article cites sources familiar with the matter, and states that the investigations focus on revenue from large, multi-year contracts that CA recorded up-front and was not necessarily received due to contract renegotiation. The report also states that investigators are looking at whether the accounting method was motivated by an incentive that granted three CA executives over $1bn in stock based on the performance of the company's share price.
In response CA said that it has been informed that the investigations remain preliminary and that "no one has been identified as a target and that no conclusions have been reached." The company further stated that its previous practice of accounting for revenues up front was proper and required by GAAP (generally accepted accounting practices).
The company has subsequently changed its business model and now recognizes revenues from multi-year deals over the life of the contract; a change it maintains was driven by a move towards more customer-oriented marketing, rather than accounting concerns.
It is not the first time that the 1998 stock payment has given the company problems. In late 1999, CA's chairman Charles Wang, president and CEO Sanjay Kumar and executive vice president of research and development Russell Artzt were ordered by a Delaware court to return around $560m in stock compensation, roughly half the original payment. Although the company's board of directors agreed the compensation payment, a group of shareholders successfully sued the company, claiming the payments were excessive.
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