Wednesday, June 30, 2004

State Controller calls for CalSTRS on EC

State Controller mr. Westly called on June 28th, 2004 for the State Teachers' Retirement System (CalSTRS) to set responsible standards to encourage companies to link the pay of top executives to long-term company performance.
In a letter to Chairman Mr. Lynes and other CalSTRS members, Steve Westly calls for the fund to develop a comprehensive strategy on the issue, including developing a corporate governance watch list for poor performing companies.

This is the full letter of Mr. Westly:

California State Controller

June 28, 2004

Gary Lynes, Chairman and
Members, California State Teachers Retirement System
7667 Folsom Boulevard
Sacramento, CA 95851

Dear Chairman Lynes and Members:

Excessive EC is a significant concern for all
shareholders. Although we have made some meaningful improvements to
our proxy voting guidelines, CalSTRS has no comprehensive strategy for
holding companies accountable for their EC policies. I believe that we must
aggressively engage on the issue.

First, we need to look at EC as a comprehensive
program, not just a set of guidelines to use when voting proxies. The
foundation of our program should be four simple concepts:

1. EC policies should link a substantive
portion of compensation to achieving key performance targets;

2. EC policies should be fully transparent to
shareholders and should be regularly submitted for shareholder

3. EC should be evaluated over an appropriate
time period (e.g., three to five years), not at just a single
point; and

4. E. contracts should be disclosed in easy-to-understand
language in the proxy statement to allow shareholders to
evaluate the link between pay and company performance.

Second, CalSTRS needs a corporate governance watch list that focuses
on excessive C. We should make clear that companies that
are underperforming their peers should not be overcompensating their
executives. Similarly, CalSTRS should recognize companies with model
EC policies as the leaders that they are.

Third, CalSTRS should engage other institutional investors and
corporate C. consultants to establish "best practices" for
corporate governance. By pursuing an EC strategy
beyond casting votes at shareholder meetings, CalSTRS will have real
impact on public companies that will result in real payoffs for our

I will be addressing this issue at the July CalSTRS meeting. I look
forward to hearing your ideas about EC and steps
that CalSTRS can take to bring about meaningful reform in this area.
If you would like to discuss these ideas before the July meeting,
please call Toni Symonds at (916) 445-2636.

Sincerely yours,

California State Controller

Thursday, June 17, 2004

Fetch the tar and feathers

This year of stunted stock market growth seems to have ignited the smoldering anger of investors and employees. Many news articles mention boards having increased their paychecks and bonusses, while simultaneously slashing corporate costs and laying off thousands of employees.
Is the behavior of CxO's "the ugly side of capitalism" as some people claim and is it about time we "fetch the tar and feathers", or are investors just venting off their emotions after a period of below-average stock returns? Should we place our bets on encouraging ethical behavior or will new accounting rules and stronger governance standards lead company executives and directors to "reconsider executive compensation programs"? Or should we be careful in allowing these kind of things to influence the fundaments of our market economy?