NewsNotables – Issue 70

Retired, Then Rehired: How college workers use loopholes to boost pay.

The Seattle Times, June 27, 2010

Double Dipping: Dozens of university or college employees have stepped down and then quickly go back to work, often in the same job, raking in both pension and salary.

The vice president for business and finance at Washington State University , with a salary of $304,000, tops a long list of college administrative staff members who have been able to boost their incomes by up to 60% by exploring a loophole in state retirement laws. The business and finance VP also collects an annual pension of $105,000. The VP has collected about $700,000 in retirement benefits while continuing to draw his salary. The Seattle Times reported that at least 40 university employees retired and were rehired within weeks, often returning to the same job without the position ever being advertised. That has allowed them to double dip by collecting both a salary and a pension.

An analysis of the state payroll and retirement records show that at the beginning of 2009, about 2,000 people were collecting both wages and a pension from the state. The Times found that in 58 state workers, including the 40 in higher education, had retired and then been rehired full-time within three months.

While the double dipping raises ethical questions, it typically falls within the boundaries of the law. In some cases, The Times found that the institutions flouted or ignored the rules altogether that prohibit them from promising employees they’ll get their jobs back if they retire. The trend has sometimes been set by those at the top. The retire-rehire mentioned above was approved by then president of WSU.

Some have been double dipping for more than a decade. An employee of The Evergreen State College retired for a month in 1999 and now collects a salary of $78,000 and a pension of $39,000. Other similar examples were also mentioned.

Comment: State pension laws make it clear that a prearranged agreement, either verbal or written, to rehire a retiring employee can nullify the workers right to collect a pension. Emails on record show that in many cases, the rule was danced around that prohibit assuring employees that they will get a job back after they retire. These college administrative employees, who should be setting high ethical standards, are benefiting at a time when state higher education funding is being slashed. The original intent of the law was good but it needs to be tightened to avoid the soft shoe dance to get around the assurance issue.

Connecticut Questions Google Tactics

The Wall Street Journal, June 8, 2010

Connecticut’s attorney general is asking Google whether it collected personal information sent over wireless networks in the state, as a privacy controversy involving the Internet giant continues to ripple around the globe. Richard Blumenthal, the state’s attorney general, said his office would determine whether the company violated state privacy laws when Google gathered private data transmitted over unsecured networks used by residents and businesses.

“Drive-by data sweeps of unsecured Wi-Fi networks here would be deeply disturbing, a potentially impermissible, pernicious invasion of privacy,” said Mr. Blumenthal. Google acknowledged that its Street View vehicles had “for years inadvertently collected data over unsecured Wi-Fi networks such as fragments of Web pages and email messages while marking the location of Wi-Fi networks and taking pictures for its online mapping service.”

Australia launched a police investigation into whether Google breached privacy laws, while authorities in Germany, Spain and France have said they were investigating Google. A U.S. congressional committee has also asked Google to explain how it came to collect the private data. Google blames the mistake on “an experimental piece of software accidentally used in its signal collection software” Google said it is working with authorities to answer questions and concerns.

Comment: Google’s little “mistake” is hard to swallow. Google states that they had “for years inadvertently collected the data over unsecured Wi-Fi networks” and blames the mistake on “an experimental piece of software accidently used.” It’s hard to fathom that for years, Google used an experimental piece of software and that they didn’t realize they were violating privacy laws. Many people don’t secure their networks, so this is a good lesson to why they should. Even so, it doesn’t give Google the right to invade unsecured networks.

New Frontier for the SEC: The Clawback

The Wall Street Journal, June 22, 2010

The Securities and Exchange Commission is pursuing a case that could upend how corporate executives are held responsible for what happens at their companies. The SEC is trying to force Maynard Jenkins, former chief executive of auto parts retailer CSK Auto Inc., to pay back $4.1 million in stock option gains and bonuses awarded last decade. The reason is that on his watch, CSK cooked the books.

The accounting problems were bad at CSK and they eventually made two earnings restatements. The SEC and Justice Department have since pursued fraud charges against some top officials, but not Jenkins. But there is an important catch. Mr. Jenkins had no part in any wrongdoing. That’s what makes the Jenkins case so important. It’s the first time the SEC has used the dormant part of the 2002 Sarbanes-Oxley act to recover money from an otherwise innocent CEO whose company restated earnings due to fraud.

The case raises a new conundrum: Can a top executive be civilly prosecuted by the government for being responsible, but not culpable, when bad things happen at his company? A portion of the Senate’s new financial overhaul bill, largely overlooked, requires that public companies claw back three years of bonuses from officers after an accounting restatement. The current language doesn’t distinguish whether misconduct is in involved or not.

CSK has settled SEC charges that it fraudulently boosted earnings during 2002-2004. In 2002, for instance, the company inflated revenues that increased pretax income by 43% according to the SEC. Mr. Jenkins bonus payments were tied to other financial goals such as refinancing the company debt and had virtually no link to CSK’s earnings statements. Most likely, Jenkins benefits from stock options exercised.

Comment: It seems like basic logic that executives, innocent or not, shouldn’t enjoy performance based bonuses when the performance is shown to be a sham. But in this case, the CEO’s bonus was related to refinancing debt, not earnings. Therefore, you might conclude the SEC is saying Jenkins should pay for the misconduct because he was captain of the ship during the time when the fraud occurred. That, in itself, could be an interesting debate. You might also ask how far can the government intervene in a matter between company and employer and how does the government determine how much of that bonus stays or goes?

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics