Time Warner 2006
RESOLVED, that the stockholders of Time Warner Inc. (“Time Warner”) ask the Compensation and Human Development Committee of the Board of Directors to adopt a policy that a significant portion of restricted stock granted to senior executives require the achievement of performance goals as a prerequisite to vesting. The policy should be implemented in a way that does not violate any existing employment agreement or the terms of any equity compensation plan currently in effect.
SUPPORTING STATEMENT
Time Warner uses a substantial amount of restricted stock to compensate its senior executives. From 2002 through 2004, Chairman and CEO Richard Parsons received restricted stock awards with a total value of $5,552,000, while Chairman of the Entertainment & Networks Group Jeffrey Bewkes received restricted stock awards valued at $13,382,250. The vesting of these awards does not depend on the achievement of any performance goals; rather, they simply vest over time.
We believe that compensation policies should align the interests of senior executives with those of stockholders. However, to provide appropriate incentives, we believe that restricted stock awards should have real downside risk. Restricted stock plans without performance-based vesting measures are often described as “pay for pulse,” because shares vest after an executive puts in a certain amount of time at the company, not as a result of achieving performance goals.
There has been significant criticism of the incentive value of restricted stock grants without performance hurdles. An August 11, 2003 editorial in Forbes characterized restricted stock grants without performance targets as “weak incentives for improving performance.” WorldCom/MCI corporate monitor and former SEC chairman Richard Breeden opined in his August 2003 governance recommendations for MCI that “there is not a strong reason for granting restricted stock rather than simply paying cash unless there are performance hurdles to vesting.” Matt Ward, CEO of San Francisco-based Westward Pay Strategies, says restricted stock grants without performance targets create “the lay-low effect: just lay low and don’t get fired.”
Leading companies have been requiring senior executives to satisfy performance requirements before restricted stock can vest. In its widely publicized 2003 shift from stock options to restricted stock, Microsoft imposed performance vesting targets on its 600 most senior managers. The performance share units granted to GE CEO Jeffrey Immelt in 2003 similarly require the achievement of goals relating to cash flow from operations and total shareholder return. Time Warner should follow the lead of these companies.
The need for performance targets for the vesting of restricted stock is especially acute in light of Time Warner’ stock price performance. According to the most recent proxy statement, $100 invested in Time Warner stock on January 12, 2001 would have been worth $40.00 on December 31, 2004, while $100 invested in an index of peer companies would have been worth $93.00 on that date.
We urge stockholders to vote for this proposal.
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Sheila Hill
Local 1319, Maryland
"I've worked hard for my pension, and my union works hard to protect it. We want to ensure that our pension investments keep companies and CEOs honest and our retirement secure."
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