News Release Lucent Retirees Organization
(Contact Information At End Of News Release)
FOR IMMEDIATE RELEASE – TUESDAY, AUGUST 24, 2004
RETIRED LUCENT SHAREHOLDERS FILE THREE PROXY PROPOSALS
TO RAISE COMPANY’S PERFORMANCE AND ACCOUNTABILITY STANDARDS
NEW YORK – A group of retired Lucent Technologies shareholders who want to set higher performance and accountability standards for their former employer announced today they have filed three proxy proposals to address present shortcomings.
The proxy statements, intended for a vote by Lucent shareowners at the company’s annual meeting in early 2005, focus on establishing auditor independence, requiring performance-based executive stock options and limiting golden parachute packages.
Jim Stickel, a Lucent shareholder from The Villages, Fla., is seeking to amend the company’s audit services pre-approval policy so that the public accounting firm retained to audit the corporate financial statements will perform only audit and audit-related work, and not perform services generating tax or consulting fees, including non-audit services related to Lucent’s pension and benefit trusts.
Stickel said that his proxy proposal stems from his concern over accounting scandals in a number of America’s corporations. Last May, in a final judgment related to accounting fraud, the SEC imposed a $25 million fine on Lucent, the largest fine the agency had ever imposed. Last year courts approved $517 million to plaintiffs suing Lucent for financial improprieties, the second largest securities class action settlement ever.
“Both Congress and the SEC have taken important steps to protect the integrity of the audit process, but I believe more needs to be done, at Lucent in particular,” Stickel stated in the proxy proposal. “My resolution requests that Lucent go further than the law requires and separate the audit of the company’s books from tax and consulting-related services.”
Stickel said his proposal specifically includes pension and benefit trust services because of the unusually large impact the pension trust has on Lucent’s finances. Lucent manages pension trust assets valued at more than double Lucent’s $13 billion market capitalization. Currently, PricewaterhouseCoopers audits Lucent’s corporate books and the pension trust funds.
“I believe this simultaneous audit arrangement presents the potential for a conflict of interest that could be detrimental to both shareholders and retirees,” Stickel said.
The dramatic impact of pension accounting credits on Lucent’s reported earnings has been documented in news reports. Last March 29, the Wall Street Journal reported “the benefit plans – thanks to accounting rules – have fed Lucent hundreds of millions of dollars of income. And through a separate accounting maneuver, the cuts that Lucent made in the benefit plans last fall will contribute hundreds of millions of dollars more in income over future years.”
On May 6, Forbes reported “This year Lucent is expected to report a net profit, but there’s a catch: The profit is being delivered by an accounting credit from a pension fund surplus, without which Lucent would post a net loss of several hundred million dollars.”
Joanne Raschke, submitted a proxy proposal that requests the Lucent Board of Directors to adopt a policy whereby at least 75% of future equity compensation (stock options and restricted stock) awarded to senior executives be performance-based and the performance criteria be disclosed to shareholders.
“As long-term shareholders, Joanne and I support compensation policies for senior executives that provide challenging performance objectives that motivate executives to achieve long-term shareholder value,” said Ken Raschke, Joanne’s husband who serves as the president of the Lucent Retirees Organization. “We believe that Lucent is the classic case of a company that awards an unnecessarily large quantity of standard stock options that can yield windfalls for executives who are merely lucky enough to hold them during a bull market.”
Ken Raschke, a Winston-Salem, N.C. resident, also cited the May Forbes article that noted the compensation of Lucent’s senior executives appears to be completely disconnected from returns to shareholders.
Forbes reported that during her first two years as CEO, Patricia Russo received compensation valued at over $40 million (including 7.9 million standard stock options) – yet Lucent’s share price dropped 40% during those two years, shedding $10 billion in market value. In fiscal 2003, Lucent reported a net loss of $1.2 billion on sales of $8.5 billion.
“Lucent’s Board response to the company’s dismal performance in fiscal 2003 was to award the top five senior executives 9.3 million standard stock options at an exercise price equal to the market price,” Raschke said. “I believe that shareholders want to see much better performance by executives before they are rewarded with millions in stock options. Moreover, because Lucent’s Board does not seek shareholder approval for stock-based incentive plans for senior executives, the company loses the tax deductibility of executive compensation exceeding $1 million.”
Walt Ehmer, an Atlanta retiree, has resubmitted his “golden parachute” proxy proposal that received support from 65% of the shares voted at Lucent’s annual meeting last February. The resolution was considered “advisory” rather than “mandatory.” To be mandatory, a resolution must garner support from more that 50% of all outstanding Lucent shares, not merely those voting.
Subsequently, Lucent announced a policy agreeing to seek shareholder approval for certain future severance agreements.
“I’ve submitted the proposal again because I believe the company’s policy falls short of the standard endorsed by shareholders,” said Ehmer, the LRO’s southeast region director. “First, Lucent explicitly reserved the right to modify the policy at any time. More critically, by counting only the multiple of salary and bonus toward the 2.99 threshold for shareholder approval, it reflects only a portion of the true cost of golden parachutes. This resolution ensures that the total cost, including perks, “consulting” payments and the vesting of contingent equity grants, determines whether shareholders vote on the agreement.”
Even if there is no change in control of Lucent, Russo’s severance package has a present value in excess of $10 million. If Russo resigns “with good reason,” or is terminated “without cause,” she is eligible for a $6 million lump sum payment (two years’ salary plus target bonus), continued benefit coverage, a minimum annual pension payment of $740,000 for life, plus the immediate vesting of 550,000 restricted shares and of options on an additional 1.22 million shares. In the event of a change in control of Lucent, Russo can resign and receive even more generous compensation (including “gross-up payments” to offset IRS excise taxes).
“I think that last year’s overwhelming support for my proposal showed that shareholders believe that Lucent’s severance agreements for top executives are unjustifiably costly,” Ehmer said. “Given Lucent’s high levels of executive compensation golden parachutes are unnecessary and their costs reduce the value ultimately received by shareholders.”
In order to make the golden parachute proposal mandatory, Ehmer acknowledged that more shareholders would need to be informed of the importance of his proposal to make sure it receives the majority vote of all Lucent shareholders.
For More Information Contact:
Ken Raschke Ed Beltram
LRO President LRO Communications Director
Phone: 336-765-9765 Phone: 719-687-6157