For Many Top Executives, It's Ask and You Shall Receive

Why would Grace pay its chief executive a bonus just for staying on the job?

"Because managing a [company in] Chapter 11 is more difficult than managing other companies," Euston said. "There's a very high degree of scrutiny from a very smart, intelligent group of lawyers and businesspeople in Chapter 11."

The chairman of the W.R. Grace compensation committee, former International Business Machines Corp. chairman and chief executive John F. Akers, declined to comment.

Companies also have been willing to rewrite the rules when things do not work out for their executives. At Broadwing Corp., a communications firm, the board's compensation committee changed the terms of 36,000 options awarded to general counsel Kim D. Larsen to increase their paper value by more than $360,000.

In a report to shareholders, the compensation committee said it saw the granting of stock options as a way "to tie executive officer compensation directly to Broadwing's long-term success and increases in stockholder value."

But in Larsen's case, the committee cited a different rationale, saying it was adjusting the terms "to provide competitive and balanced compensation as an appropriate retention incentive."

A stock option gives the holder the right to buy a share at a set price, known as the exercise price. If the market price climbs, the holder can sell the stock at a gain. On paper, Larsen's shares were out of the money because they gave him the right to acquire stock for $33.58 a share at a time when Broadwing was trading on the open market for $24.10.

Larsen still had six and a half years to exercise the options, giving him the potential to profit from future increases in the stock price. But the compensation committee changed the exercise price to $14 a share on Jan. 30, 2004, giving his options a putative value of $363,600.

Freddie Mac, which has been struggling to rebuild accounting systems and return to timely financial reporting since it disclosed billions of dollars in improper accounting in 2003, last year paid signing bonuses of $2 million each to its new chief operating officer, Eugene M. McQuade, and a new executive vice president, Patricia L. Cook. The government-chartered mortgage funding company paid chief financial officer Martin F. Baumann a retention bonus of $300,000 -- one year after paying him a signing bonus of $200,000.

Would Baumann have left if Freddie Mac had not paid the retention bonus?

"That didn't come up," Freddie Mac spokeswoman Shawn Flaherty said. "It wasn't an issue, but we wanted to make sure that it didn't become one."