Par perk irks investor
The state of Wisconsin Investment Board sent letters to 160 of the entertainment company's top shareholders encouraging them to vote against four outside directors comprising the compensation committee.
Members up for reelection
Committee members, who include Samuel Silberman, Grace Fippinger, Lawrence Small and George Weissman, are all up for reelection at the annual meeting next week.
The company's stock climbed $ 1.125 yesterday to close at $ 49.125.
The bone of contention, according to Kurt Schact, the investment board's general counsel, is the $ 2.7 million bonus Davis received in 1992.
"The issue is: significant performance bonuses were awarded for long-term and short-term performances, when the actual performances significantly lagged the market and their peer group," Schact said in an interview last night. "It's nothing more complicated than that. It's just a 'Vote No' issue. It's just that pay should be based on performance."
Short of rivals
While Paramount's stock rose 16% in 1992, compared to 4.4% for the S&P 500 stock index, it fell far short of its rivals, with Time Warner gaining 33.7%, Disney adding 50.2% in value and News Corp.'s sharing climbing 76.2%.
A char t in Paramount's proxy material supports Wisconsin's position, indicating that the company has under-performed the S&P for the last two years.
Though the company had yet to see the Wisconsin letter, Paramount spokesman Jerry Sherman commented that "the compensation committee believes compensation should be based on pay for performance, namely, growth in operating income, which more than doubled in fiscal 1992 over the year before, and return on operating assets, which was at 16% last year."
Performance proper
Schact contends that stock performance is the proper yardstick for investors. That Wisconsin isn't offering an alternative slate of directors, indicates this is more of a warning shot than proxy fight.
"We're hoping it sends a message to the compensation directors -- that's who we're voting on -- that in the future, it's necessary and important to consider these things."
At least one analyst, Ed Hatch at UBS Securities, noted in a morning report to investors that Davis' pay has had some relation to performance of the stock. In fact, the Paramount chairman's total income fell 25% in 1991 from the previous year, when his bonus was reduced to $ 1.8 million. Then, in 1992, it rose 33%, putting it on par with the 1990 level. Davis receives $ 950,000 annually in base salary.
Appears consistent
Hatch added that, "this appears consistent with the poor performance of PCI's stock in 1991," which fell 5% versus a 26% rise in the S&P 500.
Also puzzled by the action was compensation expert Graef Crystal, who was asked to put together a report on Davis' income for the Council of Institutional Investors, which represents 80 state and union pension funds.
"There are far more egregious examples than his," said Crystal. "His pay has been pretty high in every year and doesn't pay a lot of relationship to his performance."
