“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Tuesday, May 20, 2003


Yesterday, in Britain, GlaxoSmithKline shareholders actually voted down the compensation package for
its directors. The package was rather notorious even before the vote. Here's a BBC description of it:

"GSK shares, for instance, have lost about one-third of their value in the three and a half years since chief executive Jean Pierre Garnier took over, amid concerns that the firm has failed to develop new best-selling drugs. This poor track record steeled investor opposition to a pay deal which would have given Mr Garnier a pay-off of up to �22m ($35.7m) if he was dismissed."

The Guardian has a fuller story and the background.

"The stage had been set for a rebellion at GSK after the Association of British Insurers (ABI), which represents the big insurance companies and which controls about 25% of the stock market, marked the company's remuneration policy as a so-called "red top" - a rarely used indicator intended to show serious concern to its members. The National Association of Pension Funds had advised its members to abstain."

Garnier, of course, is a privileged loser, one of those new generation of CEO-Pigs who use corporations as convenient troughs to root in:

"The row was not so much about the �5m Mr Garnier earned last year but more about the �22m he stands to receive if he loses his job. The French-born chief executive told the meeting he hoped never to receive the pay-off. He repeatedly defended his decision to live in Philadelphia rather than the UK, where GSK is based."

In a more colorful Guardian report about the meeting, it appears that Garnier's ordeal was personal and devestating. Shareholder after shareholder stood up and denounced the board, and the pay committee (made up as they all are of wheezing, greased CEOs of other companies, always willing to help each other out). We particularly liked this episode:

"One referred to a comment Mr Garnier once made that "if you pay peanuts, you get monkeys," waving a bag of peanuts and accusing the chief executive of not deserving his salary.

Mr Garnier opened the meeting by giving an upbeat slide presentation of Glaxo's corporate performance, showing pharmaceutical sales up 9% and trading profits up 23% in the first quarter; but much of the discussion in the hall was focused on the terms of his contract, instead of the performance of the company."

Over at BusinessWeek, there is another article about union activism to attack CEO pay packages:

"Delta Air Lines (DAL ) pilot Michael H. Messmore was incensed at the $28 million golden parachute handed to former Delta Chief Executive Ronald W. Allen when he resigned in 1997. To stop such excesses, Messmore, with the backing of the Air Line Pilots Assn., submitted a proxy resolution in 2000 demanding shareholder approval of such deals. The initiative was rejected three years in a row. But at Delta's annual meeting on Apr. 25, widespread shareholder anger over revelations of bankruptcy-proof retirement packages for current executives put Messmore's resolution over the top, with a 54% majority. Another pilot-sponsored proposal calling for the cost of stock options to be deducted from earnings racked up a 60% majority. "Executive compensation is out of whack," says Messmore."

Of course, BW asks the 22 million pound question:

"But will companies get the message? Shareholder resolutions, after all, aren't binding, leaving management free to ignore them. Still, the current spate of shareholder votes is likely to spur a fair amount of reform. For example, both companies that lost proxy battles over executive pay last year, Bank of America (BAC ) and Norfolk Southern (NSC ) Corp., eventually adopted the measures. "Everyone's a lot more sensitive to majority votes now," says Rosanna Landis Weaver, an analyst at the Investor Responsibility Research Center in Washington."

The use of shareholders, here, reminds us of the early days of the consumer movement, when acquiring stock in a company was preliminary, for consumer advocates, to attending shareholder meetings and criticizing the company. This often worked. However, with repeated use, companies built up an immunity to criticism. Right now, this is the best weapon to cut CEO pay down to a reasonable size, but the real answer is making top executive positions competitive. Contrary to Garnier, there are probably thousands of executives of his calibre who would even be willing to live in Britain to take the reins of GSK. The first step in making a competitive environment is ceasing to disguise the effect of outrageous compensation packages on companies. A nice instance is coming up: the union pension fund holding shares of PeopleSoft have introduced a resolution to expense stock options. The CEO of PeopleSoft, Craig Conway, is your standard issue pay porker. Here's what he said:

"Employee stock options have no economic impact on a company," PeopleSoft CEO Craig Conway said in his letter to shareholders, filed Monday as an amendment to the company's proxy."

Later on in the article, we get another, gentle reminder that economic impact, for Craig Conway, is a strange thing indeed:

"PeopleSoft, one of Silicon Valley's heavier users of employee stock options, said in a recent filing that it would have had a 2002 loss of $403,000 rather than its reported profit of $38.5 million, if it had used the fair-market method to expense employee share options."

And of course the inevitable piano drops on our head:

"Stock options make up a large portion of PeopleSoft's compensation to top executives, AFSCME said in PeopleSoft's proxy filed April 28. In 2001, Conway's cash compensation totaled $3.3 million, while the value of options he was awarded was between $13.2 million and $33.4 million, depending on the return assumption used."

So, what do we have here? We have a man who is in charge of a national company who has the balls to tell us that the cost of paying for employees has no economic effect on the company. This is a little bit like an airplane executive who doesn't understand gravity. Here's a brief from TheStreet about the oily Conway:

"Then there was PeopleSoft (PSFT:Nasdaq - news - commentary - research - analysis) CEO Craig Conway. While stock in his company dropped 53% in 2002, his compensation soared, largely on the strength of a $14.6 million restricted stock award. Conway's salary stayed flat at $1 million, his bonus dropped from $2.32 million to $1.92 million and he was granted 4.1 million options, compared to 1 million options the year before. I"In a Securities and Exchange Commission filing, PeopleSoft's compensation committee praised Conway's "outstanding" performance as a leader, cited the company's overall performance and said it considered equity grants made to CEOs of other similarly sized companies. Asked about Conway's compensation, the company said it had nothing to add to the information contained in the filing."

The outstanding independence of the compensation committee -- can't you just feel it? Which consists, by the way, of the CEO of Rite-Read, who paid himself a million six in 2001, the CEO of AskJeeves, and the CEO of Symyx Technologies, who paid himself only 478 K in 2002, when company revenues and earnings dropped precipitantly, but who supplemented his meager income by exercizing options for an equal amount last year.

No comments: