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PROPOSAL 3 — STOCKHOLDER PROPOSAL
Amalgamated Bank Long View
Collective Investment Fund, located at 11-15 Union Square, New York,
NY 10003, a holder of approximately 245,530 shares of Common Stock
of the Company, has submitted the following resolution:
RESOLVED: The shareholders of
Computer Associates International, Inc. (“Computer Associates” or
the “Company”) request the board of directors to adopt a policy
whereby, in the event of a restatement of financial results, the
board will review all bonuses and any other awards that were made to
senior executives on the basis of having met or exceeded specific
performance targets during the period of the restatement and will
recoup for the benefit of the Company all such bonuses or awards to
the extent that the specified performance targets were not achieved.
SUPPORTING STATEMENT
In recent years shareholders
have increasingly taken the view that compensation for senior
executives should be closely tied to company performance. We believe
that executive compensation should provide incentives for superior
performance and that Computer Associates should be a leader in this
regard.
Recent evidence suggests that
this has not been the case at Computer Associates, however. In
October 2003 the Company announced that it had inflated revenues in
the fiscal year ending March 31, 2000 because of an accounting
practice whereby the Company reported revenues from contracts before
they had been signed.
Bonuses for senior executives
that year had been based on the extent to which income exceeded
goals. Sanjay Kumar, then the president and chief operating officer,
received a bonus of 80,000 shares and $3.2 million, based on the
Company’s supposedly superior performance in 2000.
It thus appears that Computer
Associates awarded generous bonus compensation even though the
Company had failed to meet the requisite performance goals. It also
appears that Mr. Kumar has not offered to return the shares and cash
that were awarded based on the Company’s supposed superior
performance that year, even though he reportedly declined a bonus in
a subsequent year.
In our view, there is no
excuse for such over-compensation. To the extent that Computer
Associates has a policy of incentive-based compensation for senior
executives, the Company should follow that policy. If it appears
that the Company reported erroneous results that have to be
restated, the board of directors should undertake to recoup money
that was not earned or deserved and that, in our view, belongs to
the Company.
The board of directors has
made no public statement about whether it has sought to recoup funds
that were paid to senior executives under the erroneous assumption
that performance targets for 2000 had been exceeded. The board’s
failure to take any such action would, in our view, be a serious
omission. Under the circumstances, we believe that it is important
to adopt the recommended policy whereby incentive pay for
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senior executives is paid — and
retained — only if the Company legitimately achieves performance
benchmarks that are set in advance.
We urge you to vote FOR
this resolution.
OPPOSING STATEMENT
The Board agrees that
performance-based compensation awards, granted with respect to a
specific period, should be reviewed when a restatement of financial
results for that period might affect the factors determining such
award. The Company has stated that the Board is reviewing
compensation paid to certain officers in prior years for which
results have been restated and will take appropriate action
following such review. Moreover, in the event that any future
restatement calls prior compensation awards into question, the Board
would expect to follow the same procedures.
However, the Board disagrees
with the proposal for several reasons.
First, the proposal appears
to be based on a number of erroneous assumptions. As a result, it
contains many incorrect and misleading statements, such as the
following:
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The proposal states that “the
Company . . . inflated revenues in the fiscal year ending
March 31, 2000” due to improper revenue recognition practices.
In fact, the Company’s restatement, published in April 2004,
resulted in a decrease in revenues for fiscal 2000 compared with
those previously reported — from $6.094 billion to
$6.092 billion, a decrease of 0.03%. Fiscal 2000 net income and
earnings per share were not affected at all by the restatement.
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The proposal states
“[it] . . . appears that Computer Associates awarded generous
bonus compensation even though the Company . . . failed to meet
the requisite performance goals,” resulting in
“over-compensation.” In fact, the performance-based compensation
awarded for fiscal 2000 was substantially less than was called
for by the performance metrics in question, as determined under
both the initially reported results and the restated results.
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The proposal states that the
“[B]oard . . . has made no public statement” about recouping
amounts paid to executives under the “erroneous assumption that
performance targets for 2000 had been exceeded.” In fact, as
noted above, the Company has stated that the Board is reviewing
compensation paid to certain officers in prior years for which
results have been restated, and the Board would expect to do so
in the event that any future restatement calls prior
compensation awards into question. |
Further, the proposal goes
far beyond requiring a review of previously paid performance-based
compensation. Rather, it would force the Board and its Compensation
and Human Resource Committee to seek to recoup compensation
regardless of the specific facts and circumstances present in a
particular case — including whether an executive was in any way
responsible for the events requiring the restatement. This would
deprive the Committee and the Board of the discretion and
flexibility necessary to carry out their obligations to the Company
and its stockholders.
Also, because the proposal
could put a substantial portion of performance-based compensation at
risk due to events over which an executive had no control — and
would prevent the Board from considering relevant facts and
circumstances — the Board believes that the proposal would impair
the Company’s ability to attract and retain qualified executives and
other managers. The Board believes that this is contrary to the best
interests of the Company and its stockholders.
Last, the policy called for
by the proposal could contravene existing agreements covering stock
options, restricted stock awards and other forms of compensation, as
well as any employment agreements between the Company and its
executives.
In summary, although the
Committee and the Board agree that a review of performance-based
compensation is appropriate when results are restated, it believes
that the proposal would require further actions that could be
inadvisable or harmful to the Company and its stockholders.
THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL.
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