The Hightower Lowdown

Kmart's Rip-Off

Attention Kmart shoppers, we've got a blue-light-special up on the top floor.

Only one shopper qualifies for this special, however: Jim Adamson. Jim is the new chief executive of Kmart, which recently declared bankruptcy, and his special is a fabulous pay package that he's been given to try guiding the retail chain out of bankruptcy. How fabulous? He got a $2.5 million singing bonus just for agreeing to be the new CEO, his salary is to be a minimum of $1 million a year, he's due a contingency payment of $4 million next year, and he gets a guaranteed bonus of more than a million bucks a year. That's at least $8.5 million in only his first year.

OK, you might say, but this guy has to come in from the outside to clean up the mess of the previous management group. Indeed, his employment agreement from Kmart tells us that this high pay is "necessary to induce Mr. Adamson, a highly qualified businessman, to serve as chief executive throughout these reorganization proceedings."

But, wait ... Jim is no outsider -- he's been on Kmart's board of directors for six years, including serving as chairman of the board and serving on the audit and finance committees. So he was key player on the old team that created the mess!

You can imagine that his blue-light special is causing others to see red. There are some 22,000 store employees who'll lose their jobs as a result of the mess that Jim and his fellow directors made of the company, and they've been told that they'll get no severance pay and no benefits. Thanks for your loyalty and hard work -- adios, chumps.


The Bermuda Triangle

When it comes to scams, shams, and flim-flams, you just can't keep up with corporate executives and the hordes of lawyers and accountants they hire to pervert the system for their fun and profit.

The latest is a slick corporate tax hustle that would make a snake-oil salesman blush. It's a sleight of hand that The New York Times has dubbed the Bermuda Triangle, for it makes corporate taxes disappear, thus shifting the corporate share of governmental costs to us individuals and small businesses.

Let's draw this triangle: First, let's say that Humongous Corporation Inc. has its headquarters in Houston, which is point one on the triangle. But, second, HCI's legal beagles officially reincorporate the company in Bermuda, which now becomes the "world headquarters" of HCI, even though it's only a mail drop -- the company doesn't even have an office there.

The third point of this tax triangulation is in Barbados, where HCI establishes a residency simply by holding an annual meeting there. Again, HCI has no office in Barbados, but the U.S. has a tricky tax treaty that allows HCI to send the profits it makes in America to its Barbados front company in the form of phony fees. For example, the Barbados shell can own HCI's official corporate logo. HCI in Houston then uses its U.S. profits to pay a fat royalty to its Barbados company for use of its own logo. The Barbados branch then ships this royalty "revenue" to the branch in Bermuda -- a country that has no income tax. So, HCI has laundered its profits from Houston to Barbados to Bermuda and -- poof! -- its taxable income "disappears," even though the money actually is still in HCI's hands in Houston.

To stop this tax mockery, contact Sen. Max Baucus, who is sponsoring legislation to close the Bermuda loophole: 202/224-2651.


Vignette's Piggish Pay

Time for another Hightower Hog Report!

Today's herd comes from Austin-based Vignette Corporation, one of those smart and sassy software firms that less than two years ago was wallowing in investors' cash, sipping Dom Perignon by the bucket, and strutting around like the Boss Hog. Ah, but stuff happens, and there are far leaner times in the Vignette pig pen today. The company lost $1.5 billion last year, saw its stock price plummet from about $16 to just above $3 a share, and fired nearly 1,000 employees.

However, hogs will be hoggish. Even while Vignette was collapsing, its top executives kept their snouts deep in the corporate trough, snarfing up fat paychecks. For example, while workers were getting their pink slips, chief operating officer Thomas Hogan waddled off with $6,741,000 in personal pay last year. Dan Lautenbach, who was senior vice-president for global sales, pocketed $2.5 million for himself, even though he only worked at Vignette for eight months. His pay included a $71,000 bonus. Hello. Corporate revenue was down 19%, and this guy, who was in charge of global sales, got a bonus! If revenues had dropped by only 15%, I guess they would've thrown a party in his honor.

A Vignette spokeswoman responded rather huffily to the suggestion that this pay might seem, shall we say, piggish: "We feel very comfortable with the compensation we've given our executives," she said, then added, "We need the best and brightest to maintain our No. 1 slot."

Now that's shoveling some serious stuff, don't you think? Last year, Vignette's "best and brightest" tripled the company's losses and crashed its stock price, and she's talking about being No. 1? In what, greed?

Jim Hightower is a speaker and author. To order his books or schedule him for a speech, visit www.jimhigh tower.com. To subscribe to his monthly newsletter, The Hightower Lowdown, call toll-free 866/271-4900.

The Hightower Lowdown

For more information on Jim Hightower's work – and to subscribe to his award-winning monthly newsletter, The Hightower Lowdown – visit www.jimhightower.com. You can hear his radio commentaries on KOOP Radio, 91.7FM, weekdays at 10:58am and 12:58pm.

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KEYWORDS FOR THIS STORY

Kmart, Jim Adamson, Bermuda Triangle, Barbados, taxes, Max Baucus, Vignette, Dan Lautenbach, Thomas Hogan

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