They're Getting Richer!

By Daniel Kadlec

The ink was still wet on president Bush's stock-dividend tax-rate cut in early June when Corus Bankshares in Chicago voted to triple its annual payout. CEO Robert Glickman said the move was "solely in reaction" to the new tax treatment and that he was "very pleased" to provide shareholders with a beefy new payment. Little wonder. The Glickman family owns half the company, and his 25% stake in the bank will generate $5.8 million in annual after-tax income, up from $1.3 million.

Glickman isn't the only executive who will reap a windfall thanks to the Bush cut, which lowered the tax rate on dividends to 15% from a top marginal rate of 38.6%. Since May more than 200 firms have raised their payouts to shareholders, and--in a time of scrutiny over pay packages--the increases are minting riches for bosses who own a lot of company stock.

Banking giant Citigroup, for example, just raised its annual dividend 75% to $1.40--very timely for CEO Sandy Weill, who is retiring from that role at the end of the year but is staying on as chairman. With a net worth of $1 billion, it's not as if Weill needs the money. Still, his 22 million Citi shares will spin off $27 million a year in after-tax income, up from $11 million. "That income stream only comes because I've taken the risk along with the other shareholders in this company," Weill told Time.

He's right, of course. There's nothing illegal here, nor is there anything to suggest that Bush had corporate chiefs and not economic stimulus in mind when the bill was passed. Shareholder groups applaud bigger dividends. Unlike stock options, restricted shares, annual bonuses, forgivable loans and free trips on company yachts and jets for executives, dividends directly benefit all who own the stock. Still, a controlling family like the Glickmans will enjoy an income boost without having to sell a single share and dilute their control. The family's prodigious raise was "part of the equation" when the dividend-increase decision was made, concedes Tim Taylor, chief financial officer at Corus. "But so was the fact that a lot of our shareholders had been telling us we have too much capital and they'd like some of it returned to them."

Wall Street moneymen have been among the most aggressive in raising dividends: Goldman Sachs, where executives and directors collectively own 25 million company shares, doubled its annual payout to $1 a share. After tax, CEO Henry Paulson's 4 million shares will spin off $3.4 million in dividends--up from $1.2 million. Goldman spokesman Peter Rose says it's "preposterous" that the move had anything to do with personal enrichment and that Goldman's dividend was merely brought up to the industry average. Bear Stearns, long famous for nosebleed executive pay, raised its dividend 18%, to 80-c- a share. After tax, CEO James Cayne's 4.8 million shares will pay $3.3 million in dividends each year, up from $1.8 million. Through a spokesman, Cayne declined to comment.

The mother of all dividend pay raises emerged at Microsoft, where co-founder Bill Gates will enjoy an after-tax windfall of $82 million a year thanks to the company's newly created 8-c--a-share dividend. Like Weill, Gates doesn't need the income. He is already the richest person in the world, with $30 billion in Microsoft stock. But the sheer size of his dividend is eye popping. Another company that has long avoided dividends is Viacom. But in July it said it would start paying 24-c- a share annually, which would give CEO Sumner Redstone an annual after-tax haul of $41 million. A Viacom spokesman says the dividend is a smart way to share the company's cash flow with stockholders.

These hefty pay bumps from dividends may make executives look greedy at a time when their image is bruised. "But it's what you want," says Charles Elson, director of the Weinberg Center for Corporate Governance. "It returns capital to investors, who are better than companies at redeploying it." And smart investors are figuring out how to take advantage. Tobias Levkovich, a strategist at Smith Barney, is hunting for companies with families or managements that have a large stake, figuring that the dividend will be raised and boost the stock. "We think that's a good starting point," says Levkovich, whose screen includes retailers Dillard's and Best Buy along with homebuilder Lennar. Dividends are a clean way for many CEOs to give themselves a big raise--and you have to figure that they will.