Release Date: May 20, 2004
New York, NYUnited Rentals (NYSE: URI) shareholders will vote today on a proposal challenging certain severance agreements that give benefits amounting to at least three times the executive's annual compensation of base salary plus bonus. Such generous severance packages are commonly referred to as "golden parachutes."
The proposal, filed by Amalgamated Bank's LongView Investment Funds, seeks to provide oversight for such packages by requiring boards to hold a shareholder vote for future agreements that exceed the threshold. The LongView Funds currently hold 16,641 shares of URI common stock.
Prior to his resignation in late 2003, former CEO Bradley Jacobs had a severance agreement with URI that contemplated a lump sum payment equal to 13.5 times his current base salary, plus his highest bonus in the preceding three years (worth nearly $12 million, based on 2002 figures) and additional benefits. A similar agreement for current President and CFO John N. Milne, which was in effect until recently, would have provided payment of five times base pay plus bonus. In addition, Milne and current CEO Wayland R. Hicks were promised approximately ten times their base pay plus bonus if they were terminated or to leave for good reason within 90 days after Jacobs.
According to calculations made by Equilar Inc., Jacobs' total direct compensation was $27,861,240 over the three-year period ending December 31, 2002. Though his recent voluntary departure as CEO did not trigger severance payments, he continues at United Rentals in a $250,000 per year consulting position, which includes continuation of his health benefits, over $2,000 per month in lieu of other benefits, secretarial support and personal use of company aircraft. Additionally, the vesting terms of the 2001 restricted stock grant to Jacobs were changed to include credit for work as a service provider and to provide potential for accelerated vesting.
"A shareholder approval requirement may induce restraint when parties negotiate such agreements," said Chief Economist Melissa Moye of Amalgamated Bank's Trust & Investment Group. "The size of these packages is hard to explain, given United Rentals' performance in recent years. In the absence of shareholder review, there is no safeguard against URI creating such disproportionate and lavish packages in the future."
Standard and Poor's calculates that the value of $10,000 invested five years ago in United Rentals has dropped in value to $5,672. Last September, the Council of Institutional Investors (CII) placed United Rentals on its "focus list" of companies that underperformed their respective S&P index as well as their peer groups over one-, three- and five-year periods. URI earnings for 2002 and 2003 showed a loss of $1.45 and $3.35 per share, respectively. In 2004, first quarter earnings showed a loss of a $1.38 per share.
CII recommends shareholder approval of severance agreements if the amount payable exceeds 200% of the senior executive's annual base salary. LongView's legal counsel Cornish F. Hitchcock said, "Severance agreements may be appropriate in some circumstances; nonetheless, we believe that the potential cost of such agreements entitles shareholders to a voice when the payout is excessive."
United Rentals will hold its annual meeting this afternoon in Greenwich, Connecticut.
Founded in 1923, Amalgamated Bank invests workers' retirement savings through its LongView Funds. With $8 billion in assets under management, LongView actively votes its proxies and sponsors shareholder initiatives for corporate reform. Amalgamated Bank is available online at www.amalgamatedonline.com.
