The Lucent Retirees Organization has sponsored two proxy items designed to reduce the take-home pay of Lucent's leading executives, most notably CEO and Chairman Pat Russo. The proxy items will be voted on today at Lucent's annual shareholder meeting.
Specifically, the Retirees Organization is asking shareholders to make more of Lucent's executive pay based on performace, in addition to eliminating the use of pension credits when accounting for profits that will determine the performance-based pay of managers.
Lucent's use of pension credits to beef up net profits has come under fire from several circles, including Wall Street analysts. Pension credits -- which account for paper gains in Lucent's pension funds -- may add to the net profits for the company, but they have no net effect on the company's cash position. (See Pension Concerns Hit Lucent and Lucent Snoozefest.) The proxy items aim to elimate the reliance on pension credits to boost Lucent's net profit, and thus de-link them from executive pay bonuses.
Here are Lucent shareholder Proxy items #6 and #7, from public filings:
- PROXY ITEM 6 ASKS THE BOARD TO ADOPT A POLICY REQUIRING THAT AT LEAST 75% OF FUTURE EQUITY COMPENSATION (I.E., STOCK OPTIONS AND
RESTRICTED STOCK) AWARDED TO SENIOR EXECUTIVES BE PERFORMANCE-BASED, WITH THE PERFORMANCE CRITERIA DISCLOSED TO SHAREHOLDERS.
PROXY ITEM 7 ASKS THE BOARD TO EXCLUDE "PENSION CREDITS" (WHICH ARE NON-CASH ACCOUNTING RULE INCOME) FROM THE MEASURE OF EARNINGS USED TO AWARD INCENTIVE COMPENSATION FOR EXECUTIVE OFFICERS.
The retiress wrote in the proxy filing:
- During her first three years as CEO, Patricia Russo received
equity compensation valued at over $33 million - including 14.2
million standard options - yet Lucent's share price remains
nearly 60% lower than the day she became CEO in 2002. For fiscal
years 2003 and 2004, excluding pension credits Lucent suffered a
net loss of more than $1 billion. The Board's response to these
losses? It awarded the top five senior executives 9.3 billion
standard options in 2003 and 5.6 million more options in 2004.
We believe Lucent is the classic case of a company that awards unnecessarily large quantities of standard stock options to executives and those options can yield windfalls for individual executives who are merely lucky enough to hold them during a generally rising market. As Warren Buffett has opined, standard stock options are "really a royalty on the passage of time."
Lucent excutives in the past have said that compensation practices are in line with the industry norm, and that incentive packages are necessary to keep top executives on staff.
The chances of success for the vote are probably slim, because the Retirees Organization owns only a small portion of the company's vast numbers of shares. Lucent, with its AT&T orgins, is one of most widely held stocks in the world, with roughly 4.5 billion shares available, according to Standard & Poor’s . With average daily volume of about 44 million, only about 1 percent of the company's shares trade hands on a daily basis.
The shareholder meeting, which started at 9 a.m. this morning in Wilmington, Del., can be followed here: Lucent Shareholder Webcast.
— R. Scott Raynovich, US Editor, Light Reading