Big payouts for bosses draw stockholder ire


Walter J. Ehmer is not an anti-corporate anarchist. Some of his best friends are business executives.

He was a business executive. He was president of Lucent Technologies Denmark and then vice president of Lucent's optical-fiber business, making $160,000 a year, he says, when he retired two years ago.

But there he was last week at Lucent's shareholder meeting in Wilmington, Del., sponsoring a subversive measure to slash the potential pay of bosses at his former employer.

Unusual? Here's something weirder: Ehmer's proposal passed.

Stockholders representing more than 1 billion Lucent shares - about 65 percent of the ballots cast - voted to require shareholder approval for future senior-executive "golden parachute" termination packages worth more than 2.99 times salary and bonus. And it passed the first year it was on the ballot.


"I think it's amazing by the old standards," disagrees Ehmer, 67, who spoke from his home in Atlanta. "It's not amazing by what's going on today, because more and more people are becoming disenchanted with what the top executives are paying themselves and other executive staff in light of the performance of the business."

He might be right.

This season of annual meetings, typically spring, should produce even more dissident-shareholder hand grenades than last year, when corporate owners rose up against bubble-inspired management tomfoolery, say business governance pros.

"We've got over 700 [outside proposals] that we're tracking, which is about 100 more than we had last year at this time," says Carol Bowie, director of governance research for the Investor Responsibility Research Center in Washington.

Many rebel proposals would shift the terms of directors, abolish "poison pills" and dismantle other anti-takeover defenses. But insurgent shareholders seem to have focused on one matter above all.

"CEO pay, I think, is going to be the big issue this year," says Patrick McGurn, senior vice president of Institutional Shareholder Services, which advises on proxy votes. "Anger over pay has never been higher."

The annual meeting of Lucent, a venerable telecom concern based in Murray Hill, N.J, was "actually rather calm," Ehmer said. But "there was sporadic applause when some of the questions became pointed about why the executives were paying themselves large salaries and bonuses at a time when they were reducing benefits for the retirees. Those moments got more applause than anything management said."

The anger showed up in the ballots as management's recommendation to reject the golden-parachute limit was flouted. (The vote isn't binding; Lucent says it "will consider" the proposal.)

As a leader in the Lucent Retirees Organization, Ehmer had a personal beef with management, as did many other voters. The company has reduced retiree health-care coverage.

But there aren't enough retirees, union pension pools, "socially responsible" mutual funds and other traditional proxy nuisances to add up to 65 percent of the Lucent vote. Something else is going on.

New regulations, the lingering scent of corporate scandal and an election year have combined to produce "kind of the perfect storm" beating down on corporate boards, says McGurn. "We're seeing unprecedented levels of attention to corporate governance matters by the Democrats - and increasingly by the Bush administration, as a defense measure."

Starting this year, mutual funds will be required to disclose how they vote their shares. Their own scandals are prompting funds to be extra careful that their votes are perceived as investor-friendly, McGurn says, although Bowie of the Investor Responsibility Research Center believes many funds will abstain.

At the same time, the Securities and Exchange Commission is considering allowing unhappy shareholders with big stakes to nominate their own board members, not just submit nonbinding resolutions.

The plan would open the nominating process if a company ignored resolutions passed by shareholders. This helps ensure that managers will pay attention to outside proposals and that dissidents are more encouraged to submit them.

And numerous shareholders - even those who never sided against management before - have been inspired to vote for them. You can't say management doesn't deserve it.

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