Cendant Corp. today announced a tentative settlement agreement in a shareholder dispute of the compensation package of Henry R. Silverman, Cendant CEO, president and chairman of the board.
Cendant is the parent company of the Century 21, Coldwell Banker and ERA franchise corporations and NRT, Inc., the largest real estate brokerage company in the nation, among other operations. NRT alone has 52,000 sales associates and 7,000 employees.
The settlement, which Cendant Corp. has agreed to “in principle,” relates to a shareholder derivative lawsuit that alleged that Cendant’s directors violated their fiduciary duties in approving an amended employment agreement with Silverman.
Silverman had a base salary of $3.35 million and received a bonus of about $13.8 million in 2003. He also has about 41.6 million beneficially owned shares of stock and unexercised stock options worth about $287 million, according to a Cendant SEC filing.
Compensation of senior executives has been a hot topic among investors in recent years as senior-level pay packages have grown to become extraordinarily lucrative. The settlement in Cendant’s case comes at a time of increasing government and shareholder scrutiny of corporate accountability in executive pay and other matters.
Any final settlement in Cendant’s case must be approved by the corporation’s board and submitted to the Delaware Chancery Court for approval. A hearing will be held on the matter, and shareholders can comment on the tentative agreement.
“The proposed settlement anticipates changes to the existing contract with Mr. Silverman,” Cendant said in a statement today.
Among the proposed contract changes: the expiration of Silverman’s current contract will be brought forward from Dec. 31, 2012, to Dec. 31, 2007, and severance payments, if any, will be reduced to no more than 2.99 times his prior year’s compensation, Cendant announced. A large portion of Silverman’s bonus will be subject to performance-based earnings per share goals, and a cash compensation component of a post-employment-consulting contract will be reduced in span from life to five years.
“We believe that these revised contractual arrangements are responsive to concerns we have heard from our investors, and are clearly in our shareholders’ best interest. This amendment coincides with our chairman’s primary goal of creating value for our shareholders,” Leonard S. Coleman, presiding director of Cendant’s board, said.
Silverman is the largest Cendant shareholder with direct ownership of 8 million shares and about 34 million vested and “in the money” options, Cendant announced. The proposed contract changes do not provide for any future equity grants.
On Sept. 23, 2003, lawyers representing the Leonard Loventhal Account, a Cendant stockholder, filed a complain in the Delaware Chancery Court alleging that Cendant’s directors unlawfully refused Loventhal’s request to inspect certain Cendant books and records. Specifically, Loventhal asked for “accurate and complete information concerning the company’s compensation of its CEO, Henry Silverman.” The purpose of the request, according to court documents, was to determine “whether the compensation the company has agreed to pay Mr. Silverman, including salary, bonus, life insurance and termination payments, is excessive, improper, wasteful or retroactive compensation.”
Also, Loventhal sought information to determine whether company actions complied with Sarbanes-Oxley, a federal corporation governance law, “and are otherwise proper and appropriate,” and “whether the company’s directors are independent,” court documents state. The complaint was amended Oct. 16, 2003.
Loventhal originally requested the information in a Sept. 8, 2003, letter to Cendant, and Cendant responded in a Sept. 11, 2003, letter, “Cendant Corporation will not voluntarily supply the documents requested.”
Silverman’s compensation package has come under fire from others, too. A Cendant stockholder has brought forth a proposal that seeks to place restrictions on the CEO’s compensation. One provision of this proposal calls upon Cendant’s board of directors to “limit the compensation paid to the CEO in any fiscal year to no more than 100 times the average compensation paid to the company’s non-managerial workers in the prior fiscal year, unless the shareholders have approved paying the CEO a greater amount.”
This proposal is slated to be considered at the annual shareholders meeting Tuesday. The board of directors has issued a unanimous recommendation that shareholders vote against it.
Also, the AFL-CIO labor union last week named Cendant Corp. and a short list of other large companies in a critique of executive pay packages and relationships between CEOs and compensation committee directors.
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