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California Teachers Pension Fund Targets Its Worst Corporate Performers

Posted on: Thursday, 6 October 2005, 00:00 CDT

By Gilbert Chan, The Sacramento Bee, Calif.

Oct. 6--Citing high executive pay packages and lagging stock prices, the California State Teachers' Retirement System on Wednesday targeted the nation's largest disability insurer and four other public companies as its worst corporate performers.

The $133 billion fund listed as this year's Wall Street laggards: Compuware Corp. of Detroit; Level 3 Communications Inc. of Broomfield, Colo.; Sirius Satellite Radio Inc. of New York; Solectron Corp. of Milpitas; and UnumProvident Corp. of Chattanooga, Tenn.

"The common thread ... is very high level of executive compensation," said Christopher J. Ailman, chief investment officer at CalSTRS, the nation's third largest public pension fund. "These companies' financial performance has been extremely weak. The executives know that."

In the next 12 months, CalSTRS officials plan to huddle with company executives to address corporate governance issues and business practices.

Some company officials downplayed the fund's list Wednesday, saying many financial and corporate governance issues already have been addressed.

"This is really ancient history," said Jim Sabourin, spokesman for UnumProvident Corp. "We've gone through a significant financial and operational restructuring. Our stock has improved 43.8 percent in the last two years."

Last year, CalSTRS targeted 12 companies as underperformers. Both the teachers retirement fund and the California Public Employees' Retirement System produce annual lists of underachieving companies in an effort to boost sagging financial performance.

Studies have found that targeted companies often gained additional stock value months and years after first appearing on the list.

This spring, a new CalPERS report touted that fund's cumulative share prices of all companies put under the spotlight since 1992 had gained an additional 12.6 percent three months after making the list and 48.18 percent a year later.

"Over a period of time, the results actually can be quite spectacular," Ailman said. Over decades, you see a significant change over how corporate America behaves.

CalSTRS has not produced its own follow-up study. In addition, officials do not cite specific problems for each company on its "Workplan" list.

"We tend to want to talk to the companies business to business," Ailman said. "We're not looking to embarrass these people.

CalSTRS reviews hundreds of U.S. companies in its long-term, or passive, domestic stock portfolio. U.S. stocks account for 43 percent of the fund's investment portfolio.

The targeted companies are evaluated on their one-, three- and five-year stock performances as compared with industry rivals. CalSTRS also reviews corporate governance, including executive pay and corporate board practices.

For the second straight year, Sirius Satellite Radio appears on the list. The company declined to comment.

Sirius, which provides more than 120 satellite radio stations to 2.2 million subscribers nationwide, has seen it stock price slide from $53.33 five years ago to $6.72 by Wednesday's stock market close.

Sirius officials, though, have pointed out the share price has doubled in the past year and predicted revenues will soar by 250 percent by year-end. But some analysts fear investors are worried the industry could suffer a dot.com-like bust.

Level 3, a Colorado business software and communications carrier, has seen its stock battered in the past five years, plunging to $2.27 a share today from $73 in October 2000. During an annual shareholder meeting this spring, employees and smaller investors questioned decisions by executives and cited a double-digit employee turnover rate. Officials have said the company is poised for a turnaround.

Compuware, a software company that works with mainframe computer systems, was hit hard by the high-tech decline. Since the late 1990s, the company has slashed its workforce from a high of 15,000 employees to about 7,900 today.

At Solectron, analysts have raised questions about declining revenue and a lack of visibility for the contract electronics manufacturer's products. On Wednesday, the company reported $10.4 billion in sales for fiscal 2005, down from $11.6 billion the previous year.

As for UnumProvident, state Treasurer Phil Angelides, a trustee at CalSTRS and CalPERS, urged the two funds to apply pressure last November to push the company to change its executive compensation practices. He said the insurer paid $28.4 million to the top five executives and issuing them 83 percent of all employee stock options.

On Wednesday, the UnumProvident spokesman said the compensation numbers were skewed because of a $17.3 million payout to former CEO Harold Chandler, who was ousted after the company restated three years of earnings.

"We had a CEO who left the company two years ago and included in the compensation was a severance package. It's not a particularly fair comparison," Sanbourin said.

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Source: The Sacramento Bee

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