of the Retirees May Cut Pay at Lucent
By Sara Silver
The Wall Street Journal
Wednesday, February 15, 2006
In recent years, Lucent Technologies Inc.'s retirees have
seen many of their benefits cut. Now they are fighting back
-- proposing to rein in the compensation of the executives
doing the cutting.
Lucent's shareholders today are voting on a proposal to
restrict the pay of the top brass. The proxy proposal,
which was put forward by retirees, would make 75% of
executive stock grants dependent on the telecom-equipment
maker's performance. It is partly a reaction to last year's
sharp increase in the bonus of Lucent's chief executive,
Patricia F. Russo.
It isn't just happening at Lucent. Retirees from a range of
companies including Verizon Communications Inc., General
Electric Co., International Business Machines Corp.,
Prudential Financial Inc. and Qwest Communications
International Inc. are presenting proposals to restrict
executive compensation. The retirees are motivated partly
by concerns that the value of their nest eggs can crack when
the value of their companies' stocks drops.
"In these years of corporate tumult, which has seen many
great companies turn into shells of their former selves, one
thing has remained constant -- ever-rising levels of
executive and board compensation," said Joanne Raschke, who
filed the Lucent proposal. She holds 6,200 shares of stock
in Lucent, a legacy of her husband Ken's 36 years with its
This is actually the second attempt for the Lucent
proposal. Last year a similar proposal by retirees received
very strong support from shareholders, according to Patrick
McGurn of Institutional Shareholder Services, a firm that
advises shareholders on corporate proxy votes and is
recommending they support this proposal.
Last year's proposal actually received a slim 50.2% majority
of votes cast. However, abstentions are routinely counted
as "no" votes, which caused the proposal to fail.
Mr. McGurn expects this year's proposal to receive vigorous
shareholder support. "The board didn't do anything
substantively last year to respond to that vote," Mr. McGurn
said. "That will drive strong support for it again this
At Lucent, retirees are frustrated by the elimination of a
benefit that paid up to a one-year salary to the spouse upon
the death of a retired employee, and by lower company
contributions for medical-insurance premiums. They have
been vigorous critics of CEO Russo's pay: In 2005, Ms.
Russo was awarded a $3.6 million bonus on top of a base
salary of $1.2 million, and was granted an additional $8.7
million in restricted stock and options. In 2004, she was
awarded a $1.95 million bonus on top of her $1.2 million
salary, $4.6 million in restricted stock plus $4.8 million
in options. Lucent notes that all of the options remain
below the exercise price.
Lucent says that the actions were necessary to return to
profitability, and that Ms. Russo's compensation was in part
a reward for moving the company into the black in 2004 and
2005. "We believe that our long-term compensation plans are
aligned with the interests of shareholders," said Mary Ward,
a spokeswoman, adding that half of senior executives'
compensation comes from Lucent shares whose value is based
on its operating performance.
Lucent's stock is widely held, and retirees represent only a
fraction of overall shareholders. Yesterday the stock
closed at $2.83, up six cents, or 2.2%, in 4 p.m. composite
trading on the New York Stock Exchange.
U.S. companies have been retreating from their decades-long
practice of offering a well-funded retirement for long-time
employees. Scores of companies have cut health benefits for
retirees, and in recent months, General Motors Corp., IBM
and Verizon have joined a wave of companies freezing the
level of pension benefits for certain employees.
But even as retiree benefits are being cut, compensation for
executives has risen: The median compensation for a chief
executive officer in a Standard & Poor's 500 company was $6
million in 2004, up more than 13% from 2003, according to
the Corporate Library.
While unions were among the first groups to take to
shareholder activism, the retiree groups are largely run by
former managers and technical staff, smarting at their
diminished voice and the company's often adversarial stance
to retiree questions. "We built the company and have been
cooperative with them, and we want the dialogue and some
answers," said Dick Ciocca, president of the
Philadelphia-based National Association of Prudential
Retirees. "Executive compensation was where we could get
The group has submitted a proposal to require shareholder
approval of "golden parachutes," or severance payments, for
departing executives. These kinds of proposals have had the
most success, says Carol Bowie, director of governance
research for Institutional Shareholder Services, based in
Washington. Companies such as Lucent and Verizon
voluntarily incorporated this demand after strong support
for proposals that they later negotiated off the ballot.
Other retiree groups are seeking better disclosure of
Janet Krueger, a 52-year-old software consultant who quit
IBM after 23 years, will resubmit her proposal from last
year requiring IBM to fully disclose what executives are
paid, including the value of their pensions, retiree
benefits and deferred compensation. Although IBM hasn't yet
published its proxy proposals for this year, last year it
opposed the resolution, saying the company complied with
Securities and Exchange Commission requirements.
- Dionne Searcey
contributed to this article.
Sara Silver at