Debora Vrana, Times Staff Writer
10/16/2002
Los Angeles Times
Home Edition
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Copyright 2002 Los Angeles Times
The California Public Employees' Retirement System voted Tuesday to throw its financial muscle behind a shareholder proposal urging General Electric Co. to link executive pay to performance in the wake of recent disclosures of lavish payouts made to former GE Chief Executive Jack Welch.
CalPERS, the nation's largest pension fund with $135 billion in assets, will co-sponsor the shareholder proposal with Amalgamated Bank of New York Inc. A similar proposal by Amalgamated was defeated by GE's shareholders last year.
"The story of Mr. Welch highlights some of the excesses that have existed in our marketplace," said California Treasurer Phil Angelides, a CalPERS trustee. "As shareholders, we have a responsibility and a right to restore rationality to the realm of executive pay."
CalPERS, which owns about $1.4 billion in GE stock, will ask GE shareholders to ensure that future stock option grants to senior executives are linked to company performance. The shareholder resolution will be considered at the company's annual board meeting in April.
"We made the point at the last annual meeting--compensation at GE is already closely linked to performance," said Dave Frail, a spokesman for GE. "We do look forward to discussing this with CalPERS and Amalgamated."
For 2001, his last year as GE's CEO, Welch's pay package grew by more than 80% to $16 million, even as the company's market value was dropping. Welch, once considered a CEO role model for his work at GE, has made headlines in recent weeks for a controversial retirement benefits package that gave him free use of a company jet, a luxury apartment in New York and even free flowers, wine and maid service. These benefits, which Welch has agreed to relinquish, recently came to light in a divorce filing by the 66-year-old former executive's wife.
Manhattan-based Amalgamated Bank, which invests workers' retirement savings through its LongView funds, said it expects to push for similar measures at other companies, given the current crisis in investor confidence. Amalgamated files about 20 such corporate responsibility-related proposals each year.
"Executive compensation policies like those at GE are inexcusable," said Amalgamated Bank Vice Chairman Bruce Raynor. "We expect to win majorities this year -- especially since we are partnering with CalPERS, a world leader in advocating for improved corporate governance."
Executive compensation issues are expected to heat up this year, and many corporate activists and institutional investors will be watching shareholders.
"Before it was just 'yawn,' " when it came to executive compensation, said Peg O'Hara, a managing director at the Council of Institutional Investors, a trade group. "Now everyone is interested in it."
Still, it's a difficult problem, because linking pay to performance is one of the reasons many CEOs rationalized large bonuses and perks when their firms were growing, O'Hara said.
In another action Tuesday, CalPERS voted to shift asset targets for the first time in more than two years. CalPERS will reduce bond holdings and put more money into private equity and real estate.
CalPERS said it would cut investments in global fixed-income securities to 26% from 28%. It will lift targets for alternative investments, such as venture capital and private equity, to 7% from 6% and raise real estate to 9% from 8% of assets. It voted to keep U.S. stocks at 39%.
SACRAMENTO, CA -- October 15, 2002 -- The California Public Employees' Retirement System (CalPERS) today approved a plan to file a shareholder proposal challenging General Electric's (GE) excessive executive compensation policies. CalPERS, at the urging of California State Treasurer Phil Angelides, will join with Amalgamated Bank to co-sponsor a shareholder resolution urging the GE Board of Directors to adopt a policy that clearly links pay to performance.
"Executives should be rewarded for performance, innovation and the creation of long-term value. But that is different than sanctioning a culture of greed," Treasurer Angelides said. "As shareholders, we have a responsibility and a right to restore rationality to the realm of executive pay - rewarding effective corporate leadership, while curbing excesses which undermine the economy and jeopardize the public's faith in the marketplace," he added.
The joint shareholder proposal will urge the GE Board of Directors to ensure that future stock option grants to senior executives are linked to performance. "Performance-based" stock options are defined as 1) indexed options whose exercise price is linked to an industry index; 2) premium-priced stock options, whose exercise price is above the market price on the grant date; or 3) performance-vesting options, which vest when the market price of the stock exceeds a specific target. The shareholder resolution will be taken up at the GE annual meeting in April 2003.
"At a time when thousands of workers and investors are being laid off or losing their retirements because of corporate excess, it's simply unconscionable that companies like GE should continue with its outrageous executive compensation policy," says Amalgamated Bank Vice Chair Bruce Raynor. "Now it is even more critical that the directors of GE reform these egregious practices, in order to maximize shareholder value in the long run," Raynor further commented.
The focus on General Electric arose out of the lack of any measurable link between pay and performance, which resulted in former CEO Jack Welch receiving a compensation increase of 80 percent in his final year, even as the company's aggregate market value dropped. CalPERS, the nation's largest public pension fund with assets of more than $135 billion, owns $1.4 billion in GE stock.
Amalgamated Bank invests workers' retirement savings through its LongView Funds. LongView filed a similar shareholder proposal with GE in 2001-02, which earned 31.5% of the shareholder vote. "The high vote this proposal received last year shows that shareholders support measures which will reign in excess and encourage high performance," says Raynor. "Given the current crisis in investor confidence, we expect to win majorities this year - especially since we are partnering with CalPERS, a world leader in advocating for improved corporate governance."
