Company Name: Time Warner Inc. (Carpenters' )
Public Availability Date: February 13, 2004Document Sections:
INQUIRY LETTER
APPENDIX 1
INQUIRY LETTER
APPENDIX 2
APPENDIX 3
INQUIRY LETTER [INQUIRY LETTER]
February 12, 2004 Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549 WITHDRAWAL OF NO-ACTION LETTER REQUEST
Re: Time Warner Inc. - Stockholder Proposal Submitted by United Brotherhood of
Carpenters' Pension Fund- Commonsense Executive Compensation
Ladies and Gentlemen: This letter serves to inform you that Time Warner Inc. (the "Company") hereby
withdraws its letter dated December 24, 2003 to the Securities and Exchange
Commission requesting that the Commission take a "no-action" position with
respect to the Company's omission from its 2004 proxy materials of the proposal
submitted by United Brotherhood of Carpenters' Pension Fund (the "Proponent")
relating to executive compensation. The Company has discussed the proposal with
a representative of the Proponent, and the Proponent has elected to withdraw the
proposal. Attached hereto as Exhibit A is a letter from the Proponent agreeing
to withdraw the proposal. If you need any additional information regarding this matter, please do not
hesitate to contact me at (212) 484-7350 or by facsimile at (212) 258-3157.
Sincerely, /s/
Susan Waxenberg
Assistant General Counsel and Assistant Secretary cc: Edward J. Durkin
Corporate Governance Advisor
United Brotherhood of Carpenters
Carpenters Corporate Governance Project
101 Constitution Avenue, N.W.
Washington, DC 20001 [APPENDIX 1]
EXHIBIT A [SENT VIA FACSIMILE 212 258-3157]
February 9, 2004 Susan A. Waxenberg
Assistant General Counsel and Assistant Secretary
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019-6908 Re: Carpenter's Shareholder Proposal
Dear Ms. Waxenberg: On behalf of the United Brotherhood of Carpenter's Pension Fund ("Fund"), I
hereby formally withdraw the executive compensation shareholder proposal
("Proposal") submitted by the Fund to Time Warner, Inc. ("Company's") on
December 1, 2003. The discussions with you and your colleagues were positive,
informative and very much appreciated. The commitment to enhance upcoming proxy
statement disclosure with regards to certain aspects of the Company's executive
compensation policies and practices is a very constructive step. Thank you for
this positive response that will enhance the ability of shareholders to better
understand important aspects of the executive compensation program. We look
forward to continuing the dialogue on this important matter.
Sincerely, /s/
Edward J. Durkin
Corporate Governance Advisor cc: Douglas J. McCarron, Fund Chairman [INQUIRY LETTER]
December 24, 2003 VIA OVERNIGHT MAIL Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Time Warner Inc. - Proposal Submitted by The United Brotherhood of
Carpenters Pension Fund Ladies and Gentlemen:
This letter respectfully requests that the staff of the Division of Corporation
Finance (the "Staff") of the Securities and Exchange Commission (the "SEC")
advise Time Warner Inc. (the "Company") that it will not recommend any
enforcement action to the SEC if the Company omits from its proxy statement and
proxy to be filed and distributed in connection with its 2004 annual meeting of
shareholders (the "Proxy Materials") the proposal (the "Union Proposal") it
received from The United Brotherhood of Carpenters Pension Fund (the
"Proponent"). The Union Proposal requests that the Company implement a
"Commonsense Executive Compensation" program for its senior executives.
The Company does not intend to include the Union Proposal in its Proxy Materials
pursuant to Rule 14a-8(i)(11) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), because it substantially duplicates another
proposal previously submitted to the Company by another proponent that will be
included in the Company's Proxy Materials. Pursuant to Rule 14a-8(j) under the Exchange Act, we are enclosing six copies of
each of this letter and the Union Proposal (with the Proponent's covering
letter) (Exhibit A). By copy of this letter, the Company hereby notifies the
Proponent as required by Rule 14a-8(j) of its intention to exclude the Union
Proposal from its Proxy Materials. Background and Grounds for Omission
The Union Proposal is dated December 1, 2003 and requests that "the Company's
Board of Directors and its Executive Compensation Committee replace the current
system of compensation for senior executives with the "Commonsense Executive
Compensation" program." The proposed features of such program seek to address
what the Proponent believes is an excessive and unjustified CEO-worker pay gap.
Prior to receiving the Union Proposal, the Company received for inclusion in its
Proxy Materials a proposal and supporting statement from Christian Brothers
Investment Services, Inc. (the "Prior Proposal" and, together with the Union
Proposal, the "Proposals"). The Prior Proposal requests that the Company's
Compensation Committee prepare a report on, among other things, "whether our top
executive compensation packages (including, but not limited to, options,
benefits, perks, loans and retirement agreements) are `excessive' and should be
modified." The Prior Proposal further requests an explanation of whether "the
level of pay of our lowest paid workers should result in an adjustment of
executive pay `to more reasonable and justifiable levels.'" The complete text of
the Prior Proposal is attached to this letter as Exhibit B.
Rule 14a-8(i)(11) permits the exclusion from the Company's Proxy Materials of
shareholder proposals that substantially duplicate another proposal previously
submitted by another proponent that will be included in the Company's Proxy
Materials for the same meeting. The Staff has previously indicated that a
company does not have the option of selecting between duplicative proposals, but
must include in its proxy materials the first of such proposals. See e.g., Wells
Fargo & Company (February 5, 2003). The Company received the Prior Proposal
before receiving the Union Proposal and, therefore, the Company plans to include
the Prior Proposal in its Proxy Materials. The Staff has stated that Rule 14a-8(i)(11) was adopted, in part, to eliminate
the possibility that shareholders would have to consider two or more
substantially identical proposals submitted by proponents acting independently
of each other. See Exchange Act Release No. 34-12999 (November 22, 1976). This
principle is most easily applied to proposals that are identical in wording. See
e.g., AT&T Corp. (January 26, 1999); The New Germany Fund (May 8, 1998); Great
Lakes Chemical Corporation (March 2, 1998). However, proposals do not need to be
identical to be excludable under Rule 14a-8(i)(11). The Staff has consistently
taken the position that proposals with the same "principal thrust or focus" may
be substantially duplicative even if such proposals differ as to terms and
scope. See Pacific Gas & Electric Company (February 1, 1993) (proposal to limit
CEO's compensation excludable because its "principal thrust" and "principal
focus" was the same as another proposal being included in company's proxy
materials). See also, Wal-Mart Stores, Inc. (April 3, 2002) (proposal that
company prepare an "Equal Employment Opportunity Report" excludable because it
had the same "principal thrust and focus" as another proposal relating to
affirmative action); General Electric Co. (February 9, 1994) (proposal that
company prepare a report regarding violence on its television programming
excludable because it was substantially identical to another proposal that
company form a committee to review the same issue). The rationale behind the "principal thrust or focus" concept is that the
presence in one proxy statement of multiple proposals that address the same
issue in different terms creates the risk that, if the shareholders approve each
of the proposals, the board of directors would not be left with a clear
expression of shareholder intent on the issue. Thus, while Rule 14a-8(i)(11)
protects shareholders from the confusion caused by substantially duplicative
proposals, it also protects the board from being placed in a position where it
cannot properly implement the shareholders' will because the terms of such
proposals are different, even though the subject matter is identical. See
Centerior Energy Corp. (February 27, 1995) (proposals relating to (1) freezing
executive compensation, (2) reducing executive compensation and eliminating
executive bonuses, and (3) freezing annual executive salaries and eliminating
bonuses were "substantially duplicative" of a previous proposal placing ceilings
on executive compensation, tying future executive compensation to future company
performance, and eliminating bonuses and stock options); Union Camp Corp.
(January 24, 1990) (multiple proposals requesting the company to withdraw
investments in South Africa were substantially duplicative even though one
proposal also included "specific steps in implementing" the request); Procter &
Gamble Co. (June 15, 1983) (second proposal that was identical to a portion of a
broader proposal excluded as "substantially identical").
The Company respectfully submits that the Proposals are substantially
duplicative of each other for purposes of Rule 14a-8(i)(11). The "principal
thrust or focus" of each of the Union and Prior Proposals is that the Company
review its executive compensation practices with an emphasis on what the
Proponents perceive to be the "excessive" compensation paid to the Company's
executives. In addition, each of the Proposals defines what is excessive by
reference to the disparity between executive compensation and the compensation
paid to the Company's "lowest paid" workers. Each of the Proposals asks the
Company's board to consider all aspects of its executives' compensation,
including bonus, stock options and severance arrangements.
The Prior Proposal requests a report evaluating whether the Company's executive
compensation packages should be "modified" to "more reasonable and justifiable
levels." It asks the board to focus on a perceived pay disparity over a 10-year
period. It further asserts that executive compensation levels are "a symptom of
an unaccountable CEO" that has "weakened the connection between corporate
performance and executive compensation." The Union Proposal likewise argues that executive compensation is "unjustified"
and "contrary to the interests of the Company," and it seeks to modify executive
pay to more "commonsense" levels. The Union Proposal also seeks to enhance the
correlation between corporate performance and executive compensation "based on
well-defined quantitative (financial) and qualitative (non-financial)
performance measures." Finally, the Proposals' supporting statements are practically identical in
content and tone. Both statements contain strong language condemning executive
pay levels and claiming a lack of accountability among CEOs in Corporate
America. In fact, the Proposals go so far as to quote the same CEO-to-worker pay
ratio cited in a recent compensation survey. These similarities further
illustrate that the Proposals have the same principal thrust and focus of a
perceived excess of executive compensation, particularly when compared to worker
pay. One asks for a report and assumes that Company's board will act to modify
pay packages, while the other presupposes the board's conclusion and simply
directs it to take action. The Company respectfully submits that the inclusion of both Proposals would
require the Company's shareholders to consider substantially identical proposals
submitted by proponents acting independently of each other. See Release No.
34-12999 (November 22, 1976). If the Company were required to include both
Proposals in its Proxy Materials, it would essentially be asking shareholders to
request a report evaluating whether executive pay packages should be modified,
while at the same time asking them to approve modifications to those very same
packages. This would surely confuse shareholders, who would wonder why they were
being asked to vote on two proposals that, while worded differently, address
substantially the same issue. This is precisely the kind of situation that Rule
14a-8(i)(11) seeks to avoid. Additionally, the exclusion of the Union Proposal would avoid the risk that both
Proposals are approved and the Company's board is left with no clear indication
of shareholder intent. The Prior Proposal defers to the board as to whether in
fact executive pay packages should be reduced to "more reasonable and
justifiable levels." By contrast, the Union Proposal assumes that such levels
are excessive, and proposes actual dollar amounts that the Proponent believes
are more reasonable. If both Proposals were approved, the board would be unclear
as to its mandate, and, therefore, it would be unable to implement the will of
its shareholders properly. Again, Rule 14a-8(i)(11) is intended to protect
boards from exactly this kind of situation. The Company believes that the Staff's recent no-action letter to General
Electric ("GE"), dated January 22, 2003, is particularly illustrative on this
issue. In that situation, the first proposal that GE received was almost
identical to the Prior Proposal. It requested GE's Compensation Committee to
prepare a report comparing the total compensation of its top executives and
lowest paid workers over a 20-year period, and to consider whether such
compensation packages were "excessive." The second proposal that GE received
requested that GE's board consider whether shareholder value would be enhanced
if it revised its executive compensation policies to (i) freeze executive pay
during periods of large layoffs, (ii) establish a maximum ratio between the
highest and lowest paid employees and (ii) seek shareholder approval for certain
executive severance payments. The Staff, relying on GE's representation about
the order that it received the proposals, found the second proposal was
excludable pursuant to Rule 14a-8(i)(11). The Company believes that the Staff's decision in General Electric is highly
relevant to the Company's current request. The proponents in both situations
have the same principal focus of what they believe is excessive executive
compensation, particularly when compared with general worker pay. Like the
proposals submitted to GE, the Prior Proposal requests a report from the
Company's Compensation Committee comparing the compensation of its "top
executives" and "lowest paid workers," and the Union Proposal requests the
Company's Compensation Committee to consider specific actions aimed at reducing
executive compensation. While the specific actions requested in the Union
Proposal differ from those in the second GE proposal, both sets of actions
clearly seek the same end result of a review of executive compensation practices
with a view to reducing such compensation. Because of these significant
similarities between the Proposals and those addressed in General Electric, the
Company believes that the outcome should be the same permitting exclusion of the
Union Proposal from the Company's Proxy Materials. While the focus of the Proposals is the same, there are admittedly differences
between the Proposals. The first relates to form: the Prior Proposal requests a
report while the Union Proposal requests action. However, the Staff has
previously stated that, at least with regard to the ordinary business operations
exclusion, this distinction is immaterial. See Release No. 34-20091 (August 16,
1983) (stating that a proposal seeking a special report, the subject matter of
which relates to ordinary business operations, will be excludable under Rule
14a-8(c)(7)). The second difference relates to scope: the Prior Proposal gives
the opportunity to conclude that executive pay packages are excessive, while the
Union Proposal presupposes the conclusion and requests certain corrective
actions. The Company respectfully submits that this difference is insufficient
to warrant the Union Proposal's inclusion in its Proxy Materials. First, the
Staff has previously found that proposals differing in scope but having the same
"principal thrust or focus" can still be substantially duplicative of each
other. See, e.g., General Electric (January 22, 2003); Centerior Energy Corp.
(February 27, 1995); Pacific Gas & Electric (February 1, 1993); Union Camp Corp.
(January 24, 1990). Also, each aspect of the Proponent's "Commonsense Executive
Compensation" program (salary, bonus, long-term equity compensation and
severance) is addressed in the Prior Proposal. In fact, the Prior Proposal asks
the board to consider all aspects of executive compensation packages, which
would necessarily include those in the Proponent's program. Finally, this
distinction fails to resolve the strong policy arguments for not including both
Proposals. Including both Proposals could confuse shareholders, and if both were
approved, the board would have an unclear mandate. Therefore, the Company
believes that any differences between the Proposals are insufficient to affect
the analysis under Rule 14a-8(i)(11). For these reasons, the Company respectfully submits that the Union Proposal
substantially duplicates the Prior Proposal and, therefore, it is properly
excludable under Rule 14a-8(i)(11). * * * * *
For the foregoing reasons, the Company respectfully requests that the Staff
confirm that it would not recommend enforcement action if the Company omits the
Union Proposal from its Proxy Materials. If you have any questions or if the
Staff is unable to concur with our conclusions without additional information or
discussions, we respectfully request the opportunity to confer with members of
the Staff prior to issuance of any written response to this letter. Please do
not hesitate to call the undersigned at (212) 484-7350. Please acknowledge receipt of this letter and its attachments by date-stamping
the enclosed copy of the first page of this letter and returning it in the
self-addressed stamped envelope provided for your convenience.
Very truly yours, /s/
Susan A. Waxenberg Assistant General Counsel and Assistant Secretary
cc: Edward J. Durkin United Brotherhood of Carpenters, Carpenters Corporate Governance Project
101 Constitution Avenue, NW Washington, D.C. 20001
Attachments [APPENDIX 2]
Exhibit A Commonsense Executive Compensation Proposal
Resolved, that the shareholders of Time Warner, Inc. ("Company") request that
the Company's Board of Directors and its Executive Compensation Committee
replace the current system of compensation for senior executives with the
following "Commonsense Executive Compensation" program including the following
features: (1) Salary - The chief executive officer's salary should be targeted at the mean
of salaries paid at peer group companies, not to exceed $1,000,000 annually. No
senior executive should be paid more than the CEO. (2) Annual Bonus - The annual bonus paid to senior executives should be based on
well-defined quantitative (financial) and qualitative (non-financial)
performance measures. The maximum level of annual bonus should be a percentage
of the executive's salary level, capped at 100% of salary.
(3) Long-Term Equity Compensation - Long-term equity compensation to senior
executives should be in the form of restricted shares, not stock options. The
restricted share program should utilize justifiable performance criteria and
challenging performance benchmarks. It should contain a vesting requirement of
at least three years. Executives should be required to hold all shares awarded
under the program for the duration of their employment. The value of the
restricted share grant should not exceed $1,000,000 on the date of grant.
(4) Severance - The maximum severance payment to a senior executive should be no
more than one year's salary and bonus. (5) Disclosure - Key components of the executive compensation plan should be
outlined in the Compensation Committee's report to shareholders, with variances
from the Commonsense program explained in detail. The Commonsense compensation program should be implemented in a manner that does
not violate any existing employment agreement or equity compensation plans.
Supporting Statement: We believe that compensation paid to senior executives at
most companies, including ours, is excessive, unjustified, and contrary to the
interests of the Company, its shareholders, and other important corporate
constituents. CEO pay has been described as a "wasteland that has not been
reformed." (Institutional Shareholder Services senior vice-president, Wall
Street Joumal, "Executive Pay Keeps Rising, Despite Outcry," October 3, 2003).
As of 2002, the CEO-worker pay gap of 282-to-1 was nearly seven times as large
as the 1982 ratio of 42-to-1 according to the United for a Fair Economy's Tenth
Annual CEO Compensation Survey ("Executive Excess 2003 - CEO's Win, Workers and
Taxpayers Lose.") We believe that it is long past time for shareholders to be proactive and
provide companies clear input on the parameters of what they consider to be
reasonable and fair executive compensation. We believe that executive
compensation should be designed to promote the creation of long-term corporate
value. The Commonsense executive compensation principles seek to focus senior
executives, not on quarterly performance numbers, but on long-term corporate
value growth, which should benefit all the important constituents of the
Company. We challenge our Company's leadership to embrace the ideas embodied in
the Commonsense proposal, which still offers executives the opportunity to build
personal long-term wealth but only when they generate long-term corporate value.
[APPENDIX 3]
Exhibit B PAY DISPARITY WHEREAS, increasingly, shareholders, the government, citizens and public
interest groups are greatly concerned about the growth in compensation packages
for top executives at certain U.S. corporations. These packages have increased
the pay gap between highest and lowest paid employees and weakened the
connection between corporate performance and executive compensation.
According to a study by United for a Fair Economy, the disparity between CEO
and worker pay has risen to a gap of 282-to-1, nearly seven times as large as
the ratio that prevailed in 1982. The study found that of the 50 companies with
the most layoffs in 2001, including Time Warner, median CEO pay also rose
(August 2003).
A Bloomberg article reported that, of 243 companies with 2002 revenue of $5
billion or more, average annual CEO pay was $12 million a year from 2000-2002.
The piece concluded that, "there is little rhyme or reason why one CEO makes
more than another." (August 13, 2003) The Conference Board's Public Trust and Private Enterprise Commission report
called it a "... perfect storma confluence of events in the compensation area
that created an environment ripe for abuse." It continues, "... there is an
imbalance between unprecedented levels of executive compensation, with little
apparent financial downside risk, and the relationship of this compensation to
long-term performance." (September 17, 2002) William McDonough, Public Company Accounting Oversight Board Chairman said,
"Corporate directors should think long and hard about the compensation of the
executives who head the corporations they are sworn to protect," (Money
Magazine, November 11, 2003). He warned that if corporations don't address
executive compensation, Congress may do the job for them (Dow Jones, October 20,
2003). At Senate hearings, Damon Silvers, AFL-CIO, said executive compensation, "...
has grown to a level where it is materially and directly affecting companies'
economic performance ... the more common problems involving runaway executive
pay are that (1) it is structured to create perverse incentives, (2) it corrodes
organizational cultures, and (3) it is a symptom of an unaccountable CEO and a
weak board." (May 20, 2003) RESOLVED: shareholders request the Board's Compensation Committee to initiate a
review of our company's executive compensation policies and to make available,
upon request, a report of that review by January 1, 2005 (omitting confidential
information and processed at a reasonable cost). We request the report include:
1. A comparison of the total compensation package of top executives and our
company's lowest paid workers in the United States in July 1994 and July 2004.
2. An analysis of changes in the relative size of the gap between the two groups
and the rationale justifying this trend. 3. An evaluation of whether our top executive compensation packages (including,
but not limited to, options, benefits, perks, loans and retirement agreements)
are "excessive" and should be modified. 4. An explanation of whether the issues of sizable layoffs or the level of pay
of our lowest paid workers should result in an adjustment of executive pay to
"to more reasonable and justifiable levels." [INQUIRY LETTER]
February 13, 2004 Susan A. Waxenberg
Assistant General Counsel and Assistant Secretary
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019-6908 Re: Time Warner Inc.
Dear Ms. Waxenberg: This is in regard to your letter dated February 12, 2004 concerning the
shareholder proposal submitted to Time Warner by the United Brotherhood of
Carpenters' Pension Fund for inclusion in Time Warner's proxy materials for its
upcoming annual meeting of security holders. Your letter indicates that the
proponent has withdrawn the proposal, and that Time Warner therefore withdraws
its December 24, 2003 request for a no-action letter from the Division. Because
the matter is now moot, we will have no further comment. Sincerely,
/s/ Keir Devon Gumbs
Special Counsel cc: Edward J. Durkin
Corporate Governance Advisor
United Brotherhood of Carpenters
Carpenters Corporate Governance Project
101 Constitution Avenue, NW
Washington, DC 20001
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