US: Chief's Pay Is Docked by Raytheon

Raytheon directors punished the chief executive, William H. Swanson, by taking away almost $1 million from his 2006 compensation yesterday because he failed to give credit for material that was in a management book he wrote.

Mr. Swanson's pay cut will come in two ways. His 2006 salary will be frozen at its 2005 level and his 2006 restricted stock award will be reduced 20 percent, Raytheon said. The cuts would come to nearly $1 million according to a person close to the board, who was granted anonymity because he was disclosing proprietary information.

In 2005, Mr. Swanson received a salary of $1.12 million and restricted stock valued at $2.96 million. The board acted before the annual shareholders meeting yesterday afternoon in Arlington, Va.

The punishment also comes as Raytheon has stopped circulating the book, "Swanson's Unwritten Rules of Management," a folksy book that turned Mr. Swanson into a management sage and earned him praise from business leaders like Jack Welch and Warren E. Buffett.

Raytheon, a leading military contractor, had given away more than 300,000 copies of the book and had promoted it on its Web site.

But many of the rules were later found to have been taken from a 1944 engineering classic, "The Unwritten Laws of Engineering," written by W. J. King, an engineering professor at the University of California, Los Angeles. Of Mr. Swanson's 33 rules, 17 were in the 1944 book, often word for word.

In addition, The Boston Herald reported yesterday on its Web site that Mr. Swanson had lifted four rules â€" 1 through 4 â€" from a list of maxims collected by Defense Secretary Donald H. Rumsfeld and published in The Wall Street Journal in 2001 as Rumsfeld's Rules. The first rule in both Mr. Swanson's and Mr. Rumsfeld's list is the same: "Learn to say 'I don't know.' If used when appropriate, it will be used often."

The Herald also found that Mr. Swanson's rule No. 32 was similar to a life lesson about rude treatment of waiters that was in the book "Dave Barry Turns 50," written by Mr. Barry, the humor columnist.

A statement issued by Warren B. Rudman, Raytheon's departing lead director, and Michael C. Ruettgers, the company's incoming lead director, said the Raytheon board had "expressed to Mr. Swanson its deep concern over the disclosures involving 'The Unwritten Rules.' "

The board "takes this matter very seriously" the statement said. But, it also praised Mr. Swanson for his "extraordinary vision" and said the board had "full confidence" in him.

"The board noted that Mr. Swanson, appropriately, has taken full responsibility," the statement said, and has "sincerely apologized to all involved."

In an interview yesterday, Mr. Rudman said "the board decided, and I think properly, that there is a great difference between an unintentional error, in which you have simple negligence, and an intentional act that breaches sound ethical conduct."

"Based on the evidence, we decided that this was unintentional and not negligent. It was just poor judgment."

The Boston Herald disclosure of additional copying came after the morning meeting of the Raytheon board.

While cutting Mr. Swanson's salary and stock awards, the board did not touch other forms of compensation. These include his 2006 bonus â€" he received a $2.6 million bonus in 2005 â€" along with personal use of corporate aircraft and a company-paid car. Raytheon also reimburses Mr. Swanson for his tax payments as well as covering his life insurance payments â€" neither of these items were reduced or withdrawn.

Jay Lorsch a human relations professor at the Harvard Business School, said yesterday that he was "not sure whether the punishment was appropriate to what had happened."

"This seems at best a very unusual way to deal with it," Mr. Lorsch said. "The real question is whether you want a guy like this as chief executive. A cut in pay is a little like a slap on the wrist. I suppose he is doing a good job in other ways and the company does not want to lose him. The board had to do something and maybe this is the best thing they could do."

Mr. Lorsch said it remained to be seen how Raytheon employees would react and whether Mr. Swanson's failure to attribute his rules would undercut his credibility.

A Raytheon spokeswoman, Pamela A. Wickham, said yesterday that disclosures of further copying did not change anything. She said that an apology issued by Mr. Swanson on Tuesday night, covered the material from the 1944 book, as well as material from any other newly disclosed sources.

On Tuesday night, Raytheon issued a statement on Mr. Swanson's behalf that said the source for his book came from material he had collected over the years and had given to a member of his staff to prepare a presentation that he was to give to Raytheon engineers.

"Bill knew that some of the material was from the things he had read and collected over the years," the Raytheon statement said. "Again, Bill apologizes to Raytheon's shareholders, directors and employees, as well as all involved for this misjudgment. He sincerely regrets the entire incident."

At the annual meeting yesterday, Mr. Swanson issued another mea culpa. Bloomberg News said he told shareholders: "I did not properly check source material. I apologize to those whose material I wish I had treated with greater care."

The similarities between many of the rules in Mr. Swanson's book and the 1944 text was uncovered by a San Diego engineer, Carl Durrenberger, who then posted his observations on a blog he maintains.

AMP Section Name:Executive Compensation
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  • 124 War & Disaster Profiteering

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