In a letter mailed to Novell’s major shareowners and placed on the pension fund’s corporate governance web site at, CalPERS urged votes for its shareholder proposal - Item No. 3 on Novell’s proxy - that would change Novell’s bylaws to require that at least 50 percent of senior executive equity compensation to be performance-based, and that performance metrics be fully disclosed to shareowners.
The pension fund is also encouraging shareowners to withhold votes for John W. Poduska, Sr., Chair of Novell’s Compensation Committee, for his lack of responsiveness to shareowners on the Company’s executive compensation plan.
Following more than a year of negotiations with Novell over the philosophy and practice of executive compensation, CalPERS officials believe the Company’s current plan fails to use meaningful operational or capital metrics and use them consistently across top management.
CalPERS owns 1.7 million shares of Novell Incorporated.
“Novell has shown disregard for the owners of its company,” said Rob Feckner, President of the CalPERS Board of Administration. “Their compensation plan doesn’t tie pay to long-term superior performance. It is clear that they are not serious about holding their executives accountable for the performance of the company.”
“We urge Novell shareowners to vote for our proposal to ensure that the company’s executives are only rewarded for superior and meaningful long-term performance.”
According to CalPERS investment staff, Novell’s plan falls short of aligning the interests of management with its owners based on the following factors:
- The plan does not include multiple performance metrics consistent with long-term sustainable operating performance and relies solely on premium-priced options;
- The plan fails to establish real vesting hurdles. In responding to CalPERS, Novell stated that sales and profit growth are the most compelling drivers to increase shareholder value, yet the company’s existing compensation plan relies upon a single metric, (premium-priced option) that is impacted more by volatility than true superior long-term performance;
- The company’s existing plan is poorly constructed and relies upon weak premium priced options. Novell’s stock price as of April 1, 2005 was $6.12; a gain of only $0.80 and $1.58 for 30 consecutive trading days over a one and two year period is needed to hit the desired target of 15% and 26.5%, respectively. These vesting targets are not meaningful based on the company’s 52-week range of $4.94 and $12.50. Novell’s premium price options may be impacted more by volatility than true superior and meaningful long-term performance.
- Performance-based options represent less than half of the options granted for all top executives and Novell’s Chief Executive Officer Jack L. Messman appears to be held to fewer hurdles than other executives.
Last year, CalPERS sponsored a shareholder proposal asking Novell’s Board to make 75 percent of future equity compensation of senior executives performance-based and disclose details of the plan to shareowners. More than 42 percent of Novell shareowners voted in favor of the proposal.
CalPERS is the nation’s largest public pension fund with assets of $186 billion.
