Risk & Governance WeeklyIn BriefPar Pharmaceuticals to Adopt “Say on Pay,” New York City ReportsPar Pharmaceuticals has agreed to adopt an annual shareholder advisory vote on executive pay, the New York City comptroller’s office reported Jan. 17. The company has not filed regulatory documents with the Securities and Exchange Commission indicating when it will begin holding the advisory, or “say on pay,” votes. The company did not immediately respond to a request for comment. In October, an advisory vote proposal filed by the city’s pension funds received 56.8 percent support at the Woodcliff Lake, N.J.-based company’s annual meeting. Par is the third U.S. public company to agree to hold an annual advisory vote on executive pay. Insurer Aflac plans to hold a vote this year, while Verizon Communications will hold its first pay vote in 2009. –L. Reed Walton Waxman Calls for Information, Testimony on Executive PayU.S. Rep. Henry Waxman has asked several current and former employees of three large companies to submit documents on executive pay decisions and testify at a Feb. 7 hearing on severance pay. Waxman, a Democrat from California who chairs the House Committee on Oversight and Government Reform, sent letters on Jan. 14 calling on Charles Prince, Stanley O’Neal, and Angelo Mozilo to “justify” their large retirement payouts in view of their companies’ slumping performance. Prince, former CEO of Citigroup, and O’Neal, former CEO of Merrill Lynch, took home around $40 million and $161 million, respectively, after being forced to retire after their firms suffered heavy losses from mortgage investments, according to news reports. Citigroup reported a $9.83 billion loss for fourth quarter 2007, while Merrill also reported a $9.8 billion loss for the same period. Angelo Mozilo, co-founder and CEO of mortgage lender Countrywide Financial, stands to gain an approximate $115 million payout if a planned buyout by Bank of America goes through, according to Forbes. Despite Countrywide’s 2007 share price drop of 82.5 percent, and calls by labor funds for his resignation, Mozilo will still receive country club dues and free air travel on the company jet after his retirement, The Los Angeles Times reported. “You should plan to address how [your severance package] aligns with the interests of … shareholders and whether this level of compensation is justified in light of your company’s recent performance and its role in the national mortgage crisis,” Waxman wrote in his letter to the three executives. So far, none of the executives have replied to the letters, House Oversight Committee spokeswoman Karen Lightfoot told Risk & Governance Weekly. Neither Countrywide nor Merrill Lynch responded to calls for comment before press time. Mike Hanretta, a spokesman for Citigroup, declined to comment. On Jan. 17, Waxman's committee sent out another round of letters--this time to current employees of the three companies, requesting documents and testimony on the process used to decide on severance packages for O'Neal, Prince, and Mozilo. Waxman called on John Thain, Merrill Lynch's new CEO; Vikram Pandit, the new CEO of Citigroup; and Mozilo himself, who still serves as CEO at least until the Bank of America takeover, to submit to the committee copies of all documents related to drafting the severance agreements at each company--including the names of outside consultants hired to help the board's compensation committee draft the agreements. The executives will have until Jan. 25 to submit the documents to the oversight committee, the letter states. Three additional letters, also sent on Jan. 17, went to the respective chairmen of each company's compensation committee. Harley Snyder of Countrywide, John Finnegan of Merrill Lynch, and Richard Parsons of Citigroup were asked to appear at the Feb. 7 hearing committee hearing to address how the executives' severance pay was determined, and "on what basis [the] [b]oard of [d]irectors decided to approve [the] pay package," Waxman wrote. The spate of CEO retirements and large payouts has been getting attention from other lawmakers. Senator Christopher Dodd, a Connecticut Democrat and chairman of the Senate Committee on Banking, Housing, and Urban Affairs, told Bloomberg News in November that O'Neal's exit package--the fifth-largest ever for a U.S. executive, according to Bloomberg News--may revive efforts in Congress to rein in CEO salaries. After the Countrywide buyout was announced, Rep. Barney Frank, chairman of the House Committee on Financial Services, said that Mozilo should give away some of the $150 million he made selling off company stock over the past few years. “I am calling on Angelo Mozilo, who will be profiting from this transaction personally, to donate a substantial portion … to non-profits and other institutions that are helping us deal with the problem he helped to create,” Frank said in a Jan. 11 statement. (For more information on Countrywide, please see the Oct. 26, 2007, issue of Risk & Governance Weekly.) –L. Reed Walton Ex-Brocade CEO Reyes Sentenced to 21-Month Prison TermOn Jan. 16, a federal judge in San Francisco sentenced former Brocade Communications Systems CEO Gregory Reyes to 21 months in prison for his role in the company’s misdated stock options, according to news reports. Reyes, who was convicted in August of 10 counts of securities fraud, will also be required to pay a $15 million fine. He resigned in 2005 from San Jose, Calif.-based Brocade, which he’d led since 1998, amid an internal investigation of option grants. At trial, prosecutors alleged that Reyes repeatedly used hindsight to select more favorable grant dates between 2000 and 2004, so the options would be “in the money.” Reyes and other company officials then falsified compensation committee minutes and other documents to make it appear that the options in fact were “at the money” on those dates, prosecutors said. Reyes was the first U.S. executive to be tried over options backdating. More than 200 companies have disclosed internal or federal investigations into their option-granting practices. –L. Reed Walton |
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