Raytheon board cuts CEO’s compensation

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BOSTON (AP) – Defense contractor Raytheon Co.’s board on Wednesday said it won’t give Chief Executive William Swanson a raise this year and will cut his stock compensation next year because he failed to properly credit others in his booklet of folksy management advice.

The Waltham, Mass.-based company’s board – of which Swanson is chairman – made the announcement in a statement after Raytheon’s annual shareholders meeting in Arlington, Va.

Outgoing lead director Warren Rudman, a former U.S. senator from New Hampshire, and incoming lead director Michael Ruettgers expressed “deep concern” over recent disclosures that Swanson copied management advice without giving credit to the original author in his free booklet, “Swanson’s Unwritten Rules of Management.”

The board said it won’t raise the 57-year-old’s salary above his 2005 level, which was $1.12 million, according to a regulatory filing.

The board also will reduce the amount of restricted stock Swanson can receive next year by 20 percent. Last year, Swanson’s restricted stock award was valued at $2.96 million.

But the board said it had “full confidence” in Swanson’s leadership of the $22-billion-a-year company, and credited the 33-year Raytheon employee with “extraordinary vision and performance” since taking over as CEO three years ago.

Swanson admitted failing to give proper credit for many of the sayings in the booklet after The New York Times on April 24 published a story describing its similarities to a 1944 book called “The Unwritten Laws of Engineering,” by W.J. King, a University of California at Los Angeles professor.

At Wednesday’s annual Raytheon meeting, Swanson apologized to his company’s shareholders, board, management, and 80,000 employees. He also apologized “to those whose material I wish I had treated with greater care,” according a prepared text of his speech at the meeting.

“This was an error in judgment on my part which I sincerely regret,” he said.

Swanson’s speech focused largely on gains in Raytheon’s defense business that more than doubled the company’s profit to $871 million last year.

But in closing, Swanson said he “would be remiss” if he didn’t mention the flap over the booklet.

The booklet has attained cult-like status among business leaders, with more than 300,000 free copies shipped over the years by Raytheon.

Company spokeswoman Pam Wickham said Raytheon halted the booklet’s distribution last week. There are no plans to distribute a revised booklet with proper attribution.

W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham, said the board’s decision on Swanson’s compensation “was not just a small rap on the knuckles, but a pretty substantial disciplinary action.”

Hoffman said the board sought to show that ethics rules apply equally to executives and lower-level employees.

“If it had gone unpunished, then it would have created in a lot of people’s minds the impression of a sort of two-tiered system of justice in the ethics program at Raytheon,” Hoffman said.

Mary Anne Sudol, an industry analyst at Caris & Co., said the board “sent a message (to Swanson) that actions have consequences, but at the same time, we think you’re doing a fine job as CEO – end of story.”

Shares of Raytheon rose 6 cents to close at $45.87 on the New York Stock Exchange.

The circumstances surrounding Swanson’s booklet have been compared to simultaneous questions raised about a Harvard University sophomore whose novel has been permanently withdrawn by the book’s publisher over allegations of literary borrowing. The publisher also said Tuesday it was canceling a two-book deal with Kaavya Viswanathan, and will not publish a revised edition of “How Opal Mehta Got Kissed, Got Wild, and Got a Life.”

In Swanson’s case, at least 16 of the 33 aphorisms in his 2004 booklet are similar or identical to the adages published by King.

The similarities between Swanson’s rules and King’s laws were reported by the Times after a California blogger and chemical engineer, Carl Durrenberger, compared passages from King’s book with the Swanson rules posted on USA Today’s Web site.

On Wednesday, the Boston Herald cited near-identical similarities between four of Swanson’s rules and entries in “Rumsefield’s Rules” – a list that appeared under Defense Secretary Donald Rumsfeld’s byline in the Wall Street Journal in 2001.

Another one of Swanson’s rules is similar to one that humor columnist Dave Barry included in a 1998 book, the Herald said.

Swanson has said he never copied the wording directly from King’s book. He said the rules grew out of notes he took and papers he kept dating back to his school days in California and early years at Raytheon in the 1970s.

A regulatory filing by Raytheon shows Swanson’s compensation last year totaled more than $7 million – up nearly 26 percent from the previous year – and included a $2.6 million bonus and restricted stock valued at $2.3 million, in addition to his $1.2 million salary and other compensation.

Swanson became the company’s CEO and a board member in July 2003, and he was named board chairman the following year.

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