Management Toolkit

Sun shareholders seek influence over exec pay

Stephen Shankland CNET News.com

Published: 25 Sep 2006 09:30 BST

Sun chief executive Jonathan Schwartz got a sizeable raise in fiscal 2006 along with his promotion to the top post, but some shareholders are concerned the company's executive compensation has been too generous.

Schwartz's salary and bonus increased to $1.47m in fiscal 2006, which ended on 30 June, from $1.09m the year earlier, according to a Sun regulatory filing this week. In addition, Schwartz, who took over the chief executive job in April from Chairman Scott McNealy, was granted restricted stock worth $12.97m and 2.9 million stock options that vest over a period of years.

After years of struggling, Sun has restored some of its financial health, making gains in the server market in the second quarter and posting revenue that outpaced Wall Street expectations. Thousands of employees have lost their jobs at the company along the way.

Now two shareholders want to have a say in how Sun compensates its executives. The American Federation of State, County and Municipal Employees Pension Plan and the Connecticut Retirement Plans and Trust Funds have proposed a measure that shareholders be permitted to vote, though only in an advisory capacity, to approve the board's compensation committee reports. Shareholders will vote on the measure on 2 November at the company's annual shareholder meeting.

The two shareholders cited McNealy as an example.

"In our view, senior executive compensation at Sun has been excessive in recent years. In 2005, Chairman and then-chief executive Scott McNealy received $1,233,039 in salary and bonus of 1,250,000 options, and exercised 4,800,000 stock options for $11,841,600 in value realised. At the same time, Sun was selected to the 2005 Focus List of underperforming companies by the Council of Institutional Investors," according to the proposal. "We believe that the current rules governing senior executive compensation do not give stockholders enough influence over pay practices."

Sun's board advised that stockholders vote against the measure. "The Leadership Development and Compensation Committee... believes that the current structure is appropriately balanced and competitive to accomplish the crucial task of recruiting, retaining and motivating talented senior executives in the highly competitive technology industry in which Sun competes," the board said in the filing.