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Lucent Exec Pay Faces Proxy Vote

Angry retirees from Lucent Technologies Inc. (NYSE: LU) are staging another shareholder battle this morning, aiming to cut executive pay.

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.
In filing the proxy campaign, Lucent shareholders note that much of Lucent's profits in 2005 were derived from pension accounting.

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."
The Lucent retirees, who have been fighting for more influence at Lucent for a number of years, have tried unsuccessfully in the past to reduce executive pay. The organization has also filed shareholder lawsuits. (See Lucent Retirees File Lawsuit.)

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

Stevery 12/5/2012 | 4:06:02 AM
re: Lucent Exec Pay Faces Proxy Vote 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.

Apparently, LRO was aligned with several other shareoholder's interests:

http://tinyurl.com/93cov

materialgirl 12/5/2012 | 4:06:02 AM
re: Lucent Exec Pay Faces Proxy Vote So what if current executives leave? They have just given themselves enough money to not care about company performance. I doubt they are going to be very attractive to another company after this "performance", so what is their motivation to work, other than to keep sacking the loot?

It is obscene that these people are so greedy, then try to make up for it by trimming long-held promises to retirees. At this rate, only a fool is going to stick around for a pension. They should just demand the cash up front. It is time someone stood up to this practice.
telco1158 12/5/2012 | 4:06:00 AM
re: Lucent Exec Pay Faces Proxy Vote "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."

When Harvard business school and others included ethics in their core MBA program, people wondered how this would impact the business world. 15 years or so later, is this what's to show for it?

Some people must have slept through class.
materialgirl 12/5/2012 | 4:06:00 AM
re: Lucent Exec Pay Faces Proxy Vote Another thought: imagine how disfunctional LU must be right now. Imagine Pat even walking down the hall! Do spit-balls come from the offices along the way? Do sick retirees with begging cups line the door? Does she have bodyguards to escort her along? Communication must be at zero. Now that is a great way to run a winning operation.
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