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To: pompsander who wrote (174871)	6/18/2003 6:40:46 AM
From: Road Walker	Read Replies (1) \| Respond to of 186894

CalPERS assails exorbitant pay PENSION FUND PRESSURES COMPANIES TO REIN IN RUNAWAY COMPENSATION By Mark Schwanhausser Mercury News Using its clout as the nation's biggest public pension fund, CalPERS said Tuesday that it plans to identify companies that dole out fat paychecks to executives -- and it will either shame them into changing or oppose them at the ballot box at annual shareholder meetings. The plan gives the $130 billion California Public Employees' Retirement System a means to pressure companies both publicly and behind the scenes to rein in excessive pay. Starting this fall, CalPERS will shine a spotlight on up to 15 of the nation's worst offenders in runaway executive pay. But it also has developed tough standards it will wield in talks with corporate boards and at the ballot box. Those standards could threaten common stock-option practices in Silicon Valley. ``At those companies that don't have a total disregard for stockholders, it will have a significant influence on their future behavior,'' said Paul Hodgson Sr., senior research associate with watchdog group the Corporate Library in Portland, Maine. ``They're going to start tightening up.'' Anger over executive pay has flared during the three-year bear market, which cost CalPERS and its sister, the State Teachers' Retirement System, more than $50 billion. The two pension giants lost $850 million in the accounting scandal at WorldCom, in which executives pocketed tens of millions from stock options before the company disintegrated. Plan's features Some of the backlash has fueled the push to force companies to report stock options as a corporate expense, a change that the tech industry has fought hard. But CalPERS's plan, which was approved Monday during the first day of its three-day board meeting, takes aim at executive pay more broadly. Among the features: • CalPERS will develop a statistical method to identify companies with the most egregious pay practices for chief executives. The model will factor in base salary, incentive plans, stock options and more. • CalPERS will generate a list of 10 to 15 companies with the worst pay practices (as well as those with the best habits). This will resemble its list of underperforming companies -- a distinction most companies want to avoid. ``Shaming and embarrassing companies to do the right thing seems to me to be one of the most cost-effective ways to get positive change,'' said Jesse M. Fried, a law professor at the University of California-Berkeley who is co-authoring a book critical of executive pay practices. ``That's really a badge of shame.'' The CalPERS board also adopted several standards that the pension will use when determining how to vote on shareholder proposals at annual meetings starting next spring. CalPERS intends to vote against several practices. It will oppose companies that reprice ``underwater'' stock options or that maintain ``evergreen'' stock-option plans that are replenished without shareholder approval. It will fight companies with an executive pay plan that doesn't tie pay to performance, or that don't require executives to vest their stock compensation over at least four years. And CalPERS will oppose any option plan in which the top five executives pocket more than 5 percent of the stock or options granted in a single year. Those standards would force hundreds of companies to consider fundamentally changing their pay practices -- especially in Silicon Valley, where stock options provide the bulk of executive compensation. CalPERS can rally opposition when companies seek shareholder approval to replenish their stock option plans every few years. ``That's where they have the power,'' said Steve Patchel, a senior compensation consultant with Watson Wyatt in Santa Clara. That threat will trouble many corporate boards more than the humiliation of winding up on the CalPERS ``naughty and nice list,'' he added. Hurdles for valley firms Some CalPERS standards could be tough hurdles for Silicon Valley companies. For example, at least 120 of the valley's 150 largest companies dole out more than 5 percent of their options to the top five executives. Topping that list is Media Arts Group, which reserved 94 percent of its options for top bosses in 2002. Intel, Hewlett-Packard, Siebel Systems, Intuit and Cisco Systems were among the few local companies that hand out at least 95 percent of their options to the remaining workers. Many companies also maintain ``evergreen'' provisions that boost the number of shares in option plans by an automatic amount each year, including JDS, Sandisk, Legato, TiVo, Tibco and Credence Systems. And dozens of valley companies have repriced stock options over the past two years without seeking shareholder permission. Some even allowed their top executives to exchange their underwater options, too, including Brio Software, Centillium, Electronics for Imaging, Juniper Networks, Openwave, PMC-Sierra and Portal Software. IF YOU'RE INTERESTED The CalPERS report can be accessed at www.calpers.ca.gov/whatshap/