Proxy adviser Institutional Shareholder Services signaled its opposition to Sprint (NYSE: S) CEO Dan Hesse's $49 million pay package for 2013. The challenge comes just weeks before Sprint's annual shareholder meeting, scheduled for Aug. 6.
ISS said it is challenging the pay package because Hesse's special equity award of $18.7 million was "entirely time-based, lacking connection to any performance criteria." ISS, which advises hedge funds, mutual funds and other shareholders on shareholder votes, also said that Sprint didn't disclose the goals surrounding Hesse's $16.7 million equity grant.
Hesse had a total compensation package of $11 million in 2012, according to Sprint's proxy filings with the SEC. However, in 2013 Hesse saw substantial increases over 2012 in his stock awards, options awards and compensation from Sprint's non-equity incentive plan. Hesse's $49 million package made him easily the highest-paid executive at a publicly traded company in the wireless industry last year.
Hesse's 2013 pay was more than 3.2 times the median pay level of his CEO peers, ISS said. In a report, the firm urged Sprint shareholders to vote "no" on ISS' nonbinding resolution about executive-pay practices, known as "say on pay," according to the Wall Street Journal.
T-Mobile US (NYSE:TMUS) CEO John Legere was paid a total of $29.2 million in 2013, making him the second highest paid wireless executive in 2013 after Hesse. AT&T (NYSE: T) CEO Randall Stephenson made $23.24 million in 2013, up from $22.23 million in 2012. Verizon (NYSE: VZ) Communications CEO Lowell McAdam made $15.82 million in 2013, up from $14.05 million in 2012.
Last year SoftBank completed its $21.6 billion purchase of 80 percent of Sprint and then Sprint bought partner Clearwire, shut down its Nextel iDEN network and started deploying its tri-band LTE Sprint Spark service. However, Sprint has continued to lose subscribers, especially postpaid customers, amid its work to finish its Network Vision network modernization program. The carrier is expected to report large subscriber losses next week when it posts its second-quarter earnings, according to financial analysts.
In an SEC filing earlier this year detailing Hesse's compensation package and the pay of other top executives, Sprint said it "recognized the benefits of leadership continuity in light of the transformative SoftBank" deal, as well as "the ongoing execution of our network modernization plans." As a result, in September 2013, the company signed a new employment contract with Hesse, which provides for an employment term through July 31, 2018, subject to earlier termination as provided in the agreement. The company also noted that in 2013, Hesse was granted a one-time award of 1,733,102 restricted stock units and 1,733,102 stock options. The stock awards accounted for the vast majority of Hesse's total compensation package.
Sprint said the awards "were intended to enhance our ability to retain Mr. Hesse's leadership for a minimum period of at least five years during which the Company plans to undergo a transformative change."
According to the Journal, ISS also opposes the re-election of Ronald Fisher, a Sprint board member, to the carrier's compensation committee because ISS said he isn't an independent director. Fisher is president of SoftBank Holdings and serves on the board of SoftBank. ISS said Fisher's presence on the committee could affect the committee's ability to objectively oversee Sprint's management.
However, since SoftBank controls 81 percent of the voting shares in Sprint, ISS's protests likely won't go anywhere.
In a letter responding to ISS' complaints, Sprint defended Fisher but didn't address Hesse's compensation.
"In our view, Mr. Fisher is highly aligned with all investors in ensuring a management team that has the right incentives to deliver extraordinary value," Sprint wrote. "In addition, it would be highly exceptional at a controlled company for the entity that controls the firm not to be involved in the setting of compensation for the most senior executives of the company."
Sprint also said the compensation committee's two other members were independent, in accordance with New York Stock Exchange requirements.
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