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Shareholder advisory firm pans PeopleSoft CEO

Glass Lewis advises its clients to withhold their votes to re-elect CEO Craig Conway, partly due to his "exorbitant" compensation package.

A shareholder advisory firm on Wednesday advised its clients to withhold their votes to re-elect PeopleSoft's chief executive to the board of directors.

Glass Lewis & Co., which advises pension fund and portfolio managers on how to vote on proxy matters, attributed its decision to the "exorbitant" compensation package PeopleSoft's board awarded CEO Craig Conway. The advisory firm also criticized PeopleSoft for its controversial customer assurance program, which could potentially drive up the costs of Oracle's hostile bid for the company.

"The potential cost of the program exceeds PeopleSoft's total cash and short-term investments balance of $1.4 billion as of year-end 2003," Glass Lewis said in its report. "All of this dampens the ardor of potential PeopleSoft suitors, which clearly is to the detriment of shareholders."

The advisory firm added that it views Conway as the "architect" and overseer of the customer assurance program.

Four of PeopleSoft's board members will be up for re-election next week at the company's annual shareholders meeting. Glass Lewis advised its clients to also withhold votes for directors George "Skip" Battle and Cyril Yansouni. The two directors served on the board's compensation committee, which awarded Conway his compensation package in fiscal 2003.

Last year, Conway received a compensation package that included $1 million in salary, a $2.3 million bonus and 1.5 million stock options, according to the company's proxy.

"The company's compensation to its CEO was significantly more than the median compensation for CEOs at companies" in the same sector, Glass Lewis stated.

PeopleSoft, however, took issue with Glass Lewis' recommendation.

"We believe their recommendation completely ignores the facts," said Steve Swasey, a PeopleSoft spokesman. "After a thorough investigation by ISS (Institutional Shareholder Services), the leading proxy adviser, they came out very strongly in favor of PeopleSoft's governance. Our board is a model of corporate governance."

ISS on Friday recommended its clients vote for all four PeopleSoft directors. The proxy adviser also said that although it understood PeopleSoft's reasoning for its customer assurance program, it should be discontinued now that the threat of an Oracle merger has been weakened with the recent Justice Department decision to block the merger.

Glass Lewis does not disclose the number of clients it represents and was not immediately available for comment.

"This is Glass Lewis' first year of real operations. Even though they're smaller than ISS, they probably have more clients than what most people give them credit for," said one proxy solicitor. "They tend to be a more aggressive corporate governance hawk than ISS."