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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 on whether 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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deauxfaux 12/5/2012 | 3:31:08 AM
re: Lucent Faces Fat Cat Challenge This board has an average age near 70, and is composed of a banker, neuroscience expert,auto industry exec, a former US trade rep, a university president, a health care exec and consultants. (Bios from DEF14 attached)

They are the problem. Until you get a board that looks more like a real technology company, this nonsense will continue.

Robert E. Denham, Director of Lucent since 2002.
Committees: Audit and Finance Committee (Chairman), Corporate Governance and Nominating Committee and Litigation Committee.

Partner, Munger, Tolles & Olson LLP since 1998 and from 1973G혀1991. Chairman and Chief Executive Officer of Salomon Inc (1992G혀1997). Joined Salomon in late August 1991 as General Counsel of Salomon and its subsidiary, Salomon Brothers. Chairman and President of the Financial Accounting Foundation. Director of ChevronTexaco Corp.; Fomento Economico de Mexico, S.A.; U.S. Trust Corporation; and Wesco Financial Corporation. bAge: 59

Daniel S. Goldin, Director of Lucent since 2002.
Committees: Leadership Development and Compensation Committee and Litigation Committee.

Founder and President, The Intellisis Corp. Distinguished Fellow, the Neurosciences Institute. Former NASA Administrator (1992G혀2001). Member of the National Academy of Engineers and a Fellow of the American Institute of Aeronautics and Astronautics. Director of CDW Corporation. Age: 64

Edward E. Hagenlocker, Director of Lucent since 2003.
Committees: Leadership Development and Compensation Committee.

Retired Vice-Chairman, Ford Motor Company (1996G혀1999). Chairman, Visteon Automotive Systems (1997G혀1999). Director of Air Products and Chemicals, Inc.; American Standard Companies Inc.; AmerisourceBergen Corporation; and OfficeMax Incorporated. Age: 65

Carla A. Hills, Director of Lucent since 1996.
Committees: Corporate Governance and Nominating Committee (Chairman) and Leadership Development and Compensation Committee.

Chairman and Chief Executive Officer of Hills & Company (international consultants) since 1993. United States Trade Representative (1989G혀1993). Director of American International Group, Inc.; ChevronTexaco Corp.; and Time Warner Inc. Age: 71

Karl J. Krapek, Director of Lucent since 2003.
Committees: Audit and Finance Committee.

Retired President and COO of United Technologies Corporation (1982G혀2002). Director of United Technologies Corporation (1997G혀2002). Director of The Connecticut Bank and Trust Company; Delta Airlines; Prudential Financial, Inc.; and Visteon Corporation. Age: 56

Richard C. Levin, Director of Lucent since 2003.
Committees: Audit and Finance Committee.

President, Yale University since 1993. Member of the Board of Sciences, Technology and Economic Policy at the National Academy of Arts and Sciences. Mr. Levin also serves as a trustee of the William and Flora Hewlett Foundation.
Patricia F. Russo, Director of Lucent since 2002.

Chairman and Chief Executive Officer (February 2003G혀present) and President and Chief Executive Officer (January 2002G혀February 2003) of Lucent. Chairman, Avaya Inc. (December 2000G혀January 2002). President and Chief Operating Officer of Eastman Kodak Company (April 2001G혀January 2002). Executive Vice President and Chief Executive Officer of Lucent Service Provider Networks Group (1999G혀2000) and Executive Vice President of Lucent, Corporate Operations (1996G혀1999). Director of Schering-Plough Corporation. Age: 52

Henry B. Schacht, Director of Lucent since 1996.

Chairman (October 2000-February 2003; 1996-1998) and Chief Executive Officer (October 2000G혀January 2002; 1996G혀1997) of Lucent. Senior Advisor to Lucent (February 2003G혀October 2003; 1998G혀1999). Chairman (1977G혀1995) and Chief Executive Officer (1973G혀1994) of Cummins Engine Company, Inc. Mr. Schacht is a managing director and senior advisor of Warburg Pincus LLC. Director of Alcoa Inc.; Johnson & Johnson; and The New York Times Co. Age: 70

Franklin A. Thomas, Director of Lucent since 1996 and Lead Director since October 2000.

Committees: Leadership Development and Compensation Committee (Chairman) and Corporate Governance and Nominating Committee.

Consultant to the TFF Study Group since 1996 (a non-profit initiative assisting development in southern Africa). Retired President of The Ford Foundation (1979-1996). Chairman of the oversight board of the September 11 Fund. Director of Alcoa Inc.; Citigroup N.A.; and PepsiCo, Inc. Age: 70

Ronald A. Williams, Director of Lucent since 2003.

Committees: Audit and Finance Committee.

President and Director of Aetna since 2002. Executive Vice President and Chief of Health Operations, Aetna Inc. (March 2001G혀May 2002). President, Blue Cross of California (1995G혀2001). Group President, Large Group Division, WellPoint Health Networks Inc., Blue Cross of California (1999G혀2001). Member of the Board of Trustees of The Conference Board. Member of DeanG핫s Advisory Council and the Corporate Visiting Committee at the Massachusetts Institute of Technology. Age: 55
keelhaul42 12/5/2012 | 3:31:07 AM
re: Lucent Faces Fat Cat Challenge I wonder if the solution might be offshoring?
Are there not sufficiently talented and experienced executives available in India and China for the senior mgt jobs at LU?
Are these not the hot growth markets for telecom gear for the next decade anyway?
I'm sure the [overseas] execs will be willing to work long, hard hours for very low pay. And at their low prices we can get many more of them to do any given job and still save money.


Why not give it a try? Maybe Wipro and Tata will pursue an opportunity here: there are more than a few US companies whose shareholders are fed up with giving executives multi-million dollar paychecks plus bonuses for mediocre to dismal performance.

-kh
dmw_qqqq 12/5/2012 | 3:31:07 AM
re: Lucent Faces Fat Cat Challenge Geeeeeee, 'If a majority of common stockholders vote in favor of the proposal it will then become a "recommendation" to the board.'

A recommendation! The best way to have shareholders' voices heard loud and clear is to sack the board members when they are up to re-election, and install some skinnier and cleaner-looking ones. The current board members are fat cats themselves, what do you expect from them?

-dmW

materialgirl 12/5/2012 | 3:31:06 AM
re: Lucent Faces Fat Cat Challenge Or, you can set price targets for the option awards, and let management manage earnings like they did at NT. Now thats a plan!
keelhaul42 12/5/2012 | 3:31:05 AM
re: Lucent Faces Fat Cat Challenge Or, you can set price targets for the option awards, and let management manage earnings like they did at NT. Now thats a plan!
>>>>>>>>>>>>>>>>>>
Well, you're right. We've learned ways that unscrupulous execs can "manage" their incentive compensation.

So on to the real question: is there an incentive plan that will "work", meaning compensate execs for desired results instead of providing another lesson from the law of unintended consequences?

I, too, have grown tired of watching these bums line their pockets as their companies founder.

-kh
materialgirl 12/5/2012 | 3:31:05 AM
re: Lucent Faces Fat Cat Challenge The price of liberty is eternal vigilance. Any system will get gamed over time. Markets are mankind's replacement for nature's survival of the fittest schema. So, ultimately the market must perform the discipline.

What is currently going on is that mutual funds own most of the shares of many of these giants. Money managers do not act as "owners" in that they just want to make money and often trade in and out of positions. Look at the average daily trading volume of LU to get a clue here. Until they get more pro-active, probably not much will happen. We may need MORE abuses like NT or ENE on order to get these guys off their duffs.

As individuals, about the best we can do is vote with our feet and our pockets, as well as OPEN OUR MOUTHS. Make sure everyone knows the king has no clothes here, that these second rate managers are getting rich at your expense. Then, you can either sell the shares or take your funds away from managers that allow this to go on without a negative vote. What you cannot do is just sit there and expect someone else to fix it.

The price of liberty is eternal vigilance.
keelhaul42 12/5/2012 | 3:31:04 AM
re: Lucent Faces Fat Cat Challenge I agree with you that vigilance is the price we must pay for our liberty.
But I must also admit that one of the major reasons I own shares in mutual funds is to relieve me of the burden of watching individual stocks and their associated companies. If I thought I had time to do that I'd dispense with the mutual funds.
I don't know that we can necessarily indict mutual fund managers for laxity in this regard. One would think that a company that is (a) predictable and (b) honest would command value in a market full of uncertainties, for example.
Still, your observation that there are complacent institutions owing large blocks of shares seems to have some validity.

-kh
materialgirl 12/5/2012 | 3:31:03 AM
re: Lucent Faces Fat Cat Challenge Right. You pay actively managed mutual funds to be stewards of your money. That means the whole ball of wax, including pressuring crooks to get out of high office. If they have the cash, and cash is the only tool we have to control the situation, the monkey is on their backs to use it well.
whyiswhy 12/5/2012 | 3:31:00 AM
re: Lucent Faces Fat Cat Challenge As an individual shareholder, you have less of a voice in a corporation than you do as an independent in a national election...and that's less than zero!

As an investor, DD is there to find companies performing well, and go along for the ride, like a fly on the back of an elephant.

The citizen-thing to do is to change the corporate laws so that shareholders in a corporation have at least as much say as citizens do in a democracy. Sarbanes Oxley is a start...but more legislation is needed to put shareholders in charge of the company they own.

Until then, make like a fly and buzz in your representatives ears until they swat you away with a bill or two or three.

JMHO

-Why
DarkWriting 12/5/2012 | 3:30:59 AM
re: Lucent Faces Fat Cat Challenge The price of liberty is eternal vigilance. Any system will get gamed over time. Markets are mankind's replacement for nature's survival of the fittest schema. So, ultimately the market must perform the discipline.

****************************

So let's take the retirement money from younger folks and put it into the market instead of Social Security!!

DW
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