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Lucent Faces Fat Cat ChallengeLucent Faces Fat Cat Challenge

Shareholders to vote on tighter controls over executive share bonuses

January 4, 2005

2 Min Read
Lucent Faces Fat Cat Challenge

Lucent Technologies Inc. (NYSE: LU) shareholders will get the chance to vote on the thorny issue of executive bonuses at the company's upcoming annual general meeting.

According to a new Securities and Exchange Commission (SEC) filing, Lucent's shareholders will vote onwhether the vendor should have stricter rules about the stock bonuses awarded to its senior executives.

Shareholder Joanne Raschke has filed a shareholder proposal regarding "performance-based compensation awards" that will be voted on at the company's February 16 annual general meeting in Wilmington, Delaware. The move follows the latest end-of-year round of multi-million dollar bonus awards for senior staff (see Lucent's Fat Cats Get Fatter).

Raschke proposes that Lucent should "adopt a policy whereby at least 75 percent of future equity compensation (e.g., stock options and restricted stock) awarded to senior executives shall be performance-based, and the performance criteria adopted by the Board disclosed to shareholders."

The shareholder notes that a "greater reliance on performance-based equity grants is particularly warranted at Lucent at this time," as the "compensation of Lucent’s senior executives appears to be completely disconnected from returns to shareholders." She notes that in fiscal 2003, Lucent recorded a net loss of $1.2 billion on sales of $8.5 billion, yet the "top five senior executives [received] 9.3 million standard stock options in 2003 -- at an exercise price equal to the market price."

Raschke's proposal continues: "We believe that Lucent is the classic case of a company that awards an unnecessarily large quantity of standard stock options that can yield windfalls for executives who are merely lucky enough to hold them during a bull market."

Not surprisingly, the Lucent board is urging its shareholders to vote against the proposal. "We believe our current long-term incentive approach is effectively aligning participants’ interests with those of Lucent’s shareholders," states the firm's response.

"We believe stock option grants are inherently performance-based as they provide no value to a recipient until the vesting requirements have been met and, subsequently, the trading price of the company’s stock exceeds the price at which the options were granted. We recommend a vote against the proposal."

If a majority of common stockholders vote in favor of the proposal it will then become a "recommendation" to the board.

Lucent posted a net profit for its fiscal year ending September 30, 2004, though that turnaround, following three years of losses, was helped by pension credits that can't be relied on in the future (see LU Finds New Revenue and Lucent Numbers Raise Pension Question).

— Ray Le Maistre, International News Editor, Light Reading

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