Settlement shakes up E*Trade board
Following an uproar over executive compensation, E*Trade settles a shareholder suit and pledges to revamp the board to better keep an eye on its coffers.
The online trading company plans to add a new, independent member to its board of directors. This new director will chair E*Trade's compensation committee, which will also go through its own review and changes as part of the settlement.
"The steps we have taken in recent weeks underscore our commitment to shareholders, stakeholders and associates that we will maintain the highest level of integrity with regard to issues of corporate governance," E*Trade CEO Christos Cotsakos said in a statement. "We are confident these actions and future review of processes will resolve any outstanding issues."
The company and its chief executive came under fire last month when E*Trade revealed that it paid CEO Cotsakos $88 million in compensation in 2001--including salary, bonuses, restricted stock awards and the forgiveness of a $15 million loan. Needless to say, shareholders did not warmly welcome the news in the wake of the company's $242 million net loss.
Cotsakos later agreed to a pay cut, eliminating his base salary and returning 2 million shares of restricted stock and $6 million that was earmarked for his retirement plan.
The loan forgiveness, which the company announced last fall, was the impetus for the shareholder suit. Not only did the company forgive the loan, but E*Trade also gave Cotsakos $15.2 million to pay income taxes on the loan forgiveness.
The lawsuit, filed in December 2001 in California Superior Court in San Mateo County, charged Cotsakos and the company's board of directors with gross mismanagement and breach of fiduciary duties in part for the loan forgiveness.
The company also plans to remove Softbank Vice Chairman Ronald Fisher from the compensation committee and replace him with Lester Thurow, a professor of management and economics at the Massachusetts Institute of Technology.
Although the new board member will replace former Critical Path Executive Chairman David Hayden as the chairman of E*Trade's compensation committee, Hayden will remain a member of the committee.
The settlement comes one day before E*Trade's annual shareholder meeting, which is scheduled for Friday in Redwood City, Calif.