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| | Jubak's Journal
CEOs brush trouble under the rug
As companies approach their spring annual meetings, CEOs are doing a little window dressing to head off shareholder unrest.
By Jim Jubak
In 2001, Citigroup (C, news, msgs) paid CEO Sandy Weill a salary of $1 million, a $17 million cash bonus and a grant of restricted stock valued at $8 million. Not bad for a guy who guided his companys shares to a whopping 0.3% gain in 2001.
For 2002, at the CEOs own request, there wont be any cash bonus in Weills pay envelope. Given the decline in shareholder value for the year, Weill told Citigroups board, he would not accept any bonus for 2002 performance.
Seems fair enough, since Citigroups shares fell almost 25% in 2002. Controversy over whether or not Weill tried to influence the stock ratings of star telecom analyst Jack Grubman certainly played a big part in that drop.
But dont cry for Weill. The Citigroup board voted him options on 1.5 million shares, worth about $18 million right now.
Just coincidence that Weill will lose a $17 million cash bonus and pick up $18 million in options?
Of course not.
Company boards find it a lot easier to defend huge packages of options to shareholders than huge bundles of cash. After all, they can point out, the CEO has to earn the options by producing gains for all shareholders, or the options expire worthless.
Spring cleaning
And this year, as the spring season for sending out annual proxies and holding yearly shareholder meetings nears, companies are keeping close tabs on any issue that might send shareholder anger at extravagant executive compensation boiling over. (Annual meetings are bunched in April, May and June.)
The goal this year at many companies seems to be taking just enough action before the annual meeting so management and the board of directors can claim to be on the side of the reformers.
Look at the response to a shareholder proposal submitted by the AFL-CIO to seven companies. The proposal for a spring proxy vote by shareholders attacked the special retirement plans set up just for high-ranking executives at each company and asked shareholders to vote to cut back the payouts in these plans.
General Electric (GE, news, msgs) and Coca-Cola (KO, news, msgs) both already have said theyre cutting back the payouts on the plans. At a time when most of those saving for retirement are contemplating losses from their investments, the 12% annual return guaranteed by General Electrics executives-only plan has become too difficult to defend. Coca-Cola has said it will phase out an executive pension plan that is more generous than the one available to most workers.
The five other companies on the AFL-CIO list havent yet replied.
So many shareholder demands
Looking at the raw numbers on the numbers of shareholder proposals filed this year explains why companies are so eager to get ahead of the game.
As of Feb. 1, 2003, with annual meetings still months away, 862 shareholder proposals have been filed, according to a report from the Investor Responsibility Research Center and the Interfaith Center on Corporate Responsibility. That compares with just 802 proposals filed in all of 2002.
Of the 862 proposals this year, 625 deal with corporate governance -- the catch-all category that includes executive compensation, board independence and accounting conflicts of interest. In 2002, only 529 proposals were filed in this category.
So far in 2003, 44% of all proposals on corporate governance concern excessive executive compensation.
Although all this has certainly focused the attention of corporate boards, many companies arent budging anymore than they have to in the early going.
For example, General Electric did do away with an executive retirement plan guaranteeing 12% interest. But the company has kept one guaranteeing 9.5% in force.
It should be an interesting spring.
Editor's Note: A new Jubaks Journal is posted every Tuesday, Wednesday and Friday. The Wednesday edition stems from Jim's appearance on CNBCs Business Center most Wednesday nights at approximately 5:45 p.m. ET. Selected CNBC stories can be found in the TV Reports index.
At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Citigroup. He does not own short positions in any stock mentioned in this column.
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