The Ontario Teachers’ Pension Plan is protesting executive pay at U.S. phone giant Sprint Nextel Corp., announcing it has voted against the re-election of the company’s CEO and five board members.
The decision comes after chief executive officer Dan Hesse announced Friday he would take a pay cut because of shareholder complaints about his $12-million (U.S.) pay package last year. But Teachers said Monday the changes “only partially alleviate” its concerns.
“We therefore do not support his re-election to the board,” the pension giant said.
Teachers, one of Canada’s largest pension plans, owns about 4 per cent of Sprint’s shares, making it a key investor at the widely held telecommunications giant.
Mr. Hesse earned compensation worth $11.9-million in 2011, including $5.7-million of cash bonuses and $5-million of stock and option awards.
On Friday, Sprint said Mr. Hesse will take a cut in pay this year. His 2012 pay will be cut by $346,000 to repay incentive payments he has already received, and he said he will forfeit additional amounts he was eligible to receive under 2011 and 2012 incentive plans.
Mr. Hesse said his total voluntary reduction adds up to $3.25-million of foregone compensation, and the changes will reset his 2012 incentive pay targets to 2010 levels.
The reduction came after shareholders complained about the financial hit Sprint has taken on a $15-billion program to sell Apple’s iPhone at rates that include high subsidy payments to Apple.
Teachers sent a four-page letter in January to Gordon Bethune, chairman of Sprint’s compensation committee, complaining about the lack of linkage between Sprint’s pay and its recent performance.
In the letter, Teachers said Sprint has been cutting its annual operating income target -- known at Sprint as “OIBDA” or operating income before depreciation and amortization -- used to calculate executive pay. The reduction in the target gives executives “the potential of being rewarded for achieving lower performance targets on a year-over-year comparison,” the January letter said.
The letter said the compensation committee should provide “a clear rationale” for adjusting the target downward since 2007.
“We find it unacceptable that the committee continues to lower OIBDA year over year and believe that this continual reduction in OIBDA has caused an unprecedented decline in the share price,” Teachers said.
Teachers also detailed concerns about the design of the company’s long-term restricted share unit plan and its performance unit plan for executives.
Teachers said this week it believes the board has been unresponsive to its concerns about pay structure and still supports “various characteristics of the compensation plan that we continue to believe are inappropriate.”
In addition to voting against the re-election of Mr. Hesse and Mr. Bethune at Sprint’s May 15 annual meeting, Teachers said it has voted against the re-election of chairman James Hance and compensation committee members Janet Hill, William Nuti and Rodney O’Neal. The pension fund also voted against the compensation plan under Sprint’s annual say-on-pay advisory vote.