Company Name: RadioShack Corp.
Public Availability Date: February 28, 2005
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX 1
STAFF REPLY LETTER
[INQUIRY LETTER]
January 18, 2005
Direct Dial (202) 955-8671
Fax No. (202) 530-9569
Client No. C 89185-00006
VIA HAND DELIVERY
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Stockholder Proposal of William Steiner
Securities Exchange Act of 1934Section 14(a), Rule 14a-8
Dear Ladies and Gentlemen:
This letter is to inform you that our client, RadioShack Corporation (the
"Company"), a Delaware corporation, intends to omit from its proxy statement and
form of proxy for its 2005 Annual Stockholders Meeting (collectively, the "2005
Proxy Materials") a stockholder proposal and a statement in support thereof (the
"Proposal") received from William Steiner, naming John Chevedden as his
designated representative (the "Proponent"). The Proposal and related
correspondence are attached hereto as Exhibit A.
Pursuant to Rule 14a-8(j), enclosed herewith are six (6) copies of this letter
and its attachments, a copy of which is being mailed on this date to the
Proponent informing him of the Company's intention to omit the Proposal from the
2005 Proxy Materials. Also pursuant to Rule 14a-8(j), this letter is being filed
with the Securities and Exchange Commission (the "Commission") no later than
eighty (80) calendar days before the Company files its definitive 2005 Proxy
Materials with the Commission. On behalf of the Company, we hereby agree to
promptly forward to the Proponent and Mr. Chevedden any Staff response to this
no-action request that the Staff transmits by facsimile to the Company only.
THE PROPOSAL
The Proposal recommends that the Company's Bylaws be amended by adding the
following language that is set forth in the Proposal:
"Section A.1. Executive Compensation. From the date of adoption of this section
no officer of the Corporation shall receive annual compensation in excess of the
limits established by the U.S. Internal Revenue Code for deductibility of
employee remuneration, without approval by a vote of the majority of the
stockholders within one year preceding the payment of such compensation. The
only exception would be interference with un-removable contractual obligations
prior to this proposal.
For purposes of the limit on executive compensation established by this Section,
the Corporation may exclude compensation that qualifies either as
"performance-based compensation" or as an "incentive stock option" within the
meaning of the Internal Revenue Code only if:
(a) in the case of performance-based compensation, the Corporation shall first
have disclosed to stockholders the specific performance goals and standards
adopted for any performance-based compensation plan, including any schedule of
earned values under any long-term or annual incentive plan; and
(b) in the case of incentive stock options, the Corporation shall record as an
expense on its financial statements the fair value of any stock options
granted."
* * *
On behalf of our client, we hereby respectfully request that the staff of the
Division of Corporation Finance (the "Staff") concur in our view that the
Proposal may be excluded from the 2005 Proxy Materials pursuant to Rule
14a-8(i)(2) because implementation would cause the Company to violate Delaware
law and pursuant to Rule 14a-8(i)(6) because the Company lacks the power and
authority to implement the Proposal. As discussed below, we also believe that
the Proposal is excludable under Rule 14a-8(i)(3) because it is impermissibly
vague. Should the Staff not concur with these bases for exclusion, we further
believe that the Proposal requires revision pursuant to Rule 14a-8(i)(7) and
Rule 14a-8(l)(1).
ANALYSIS
1. The Proposal May Be Excluded Under Rule 14a-8(i)(2) Because Implementation
Would Cause the Company to Violate Delaware Law.
Rule 14a-8(i)(2) allows a company to exclude a proposal if implementation of the
proposal would cause it to violate any state, federal or foreign law to which it
is subject. The Company is incorporated under the laws of the State of Delaware.
The Proposal would require the Company to obtain approval of the "majority of
stockholders within one year preceding the payment of such compensation" in
order for any Company officer to "receive annual compensation in excess of the
limits established by the U.S. Internal Revenue Code for deductibility of
employee remuneration" (emphasis added).
A vote of the "majority of stockholders" is also known as per capita voting.
Section 212(a) of the Delaware General Corporation Law (the "DGCL") states "[u]nless
otherwise provided in the certificate of incorporation and subject to the
provisions of §213 of this title, each stockholder shall be entitled to 1 vote
for each share of capital stock held by such stockholder." Thus, as explained in
the opinion provided by Potter Anderson & Corroon LLP, per capita voting differs
from the "one share, one vote" requirement in Section 212(a). See Exhibit B.
Moreover, alteration of the "one share, one vote" standard set forth in Section
212(a) of the DGCL is valid and enforceable only if set forth in a Delaware
company's certificate of incorporation. Article Fourth of the Company's Restated
Certificate of Incorporation states "Each share of Common Stock shall entitle
the holder thereof to one vote, in person or by proxy, at any and all meetings
of the stockholders of the Corporation." See Exhibit C. Thus, the Company's
Certificate of Incorporation does not authorize per capita voting. Accordingly,
as discussed in the attached legal opinion, the Proposal mandates a voting
standard that, if implemented, would cause the Company to violate Delaware law.
We also note that, although the Proposal "recommends" that the Company adopt the
proposed Bylaw amendment, even a precatory proposal is excludable if the action
called for by the proposal would violate state, federal or foreign law. See,
e.g., Gencorp Inc. (avail. Dec. 20, 2004) (concurring that a proposal requesting
amendment of the company's governing instruments to require implementation of
all stockholder proposals receiving a majority vote is excludable under Rule
14a-8(i)(2)). See also Badger Paper Mills, Inc. (avail. Mar. 15, 2000); Pennzoil
Corporation (avail. Mar. 22, 1993).
Finally, we note that the Staff has recently concurred that this identical
proposal is excludable under Rule 14a-8(i)(2) for the reasons discussed above.
See Hewlett-Packard Company (avail. Jan. 6, 2005) (concurring that
implementation of the proposal will cause the company to violate state law);
General Electric Company (avail. Jan. 12, 2005) (same). In sum, we request that
the Staff concur that the Proposal is excludable under Rule 14a-8(i)(2) because
implementation of the Proposal would cause the Company to violate Delaware law.
II. The Proposal May Be Excluded under Rule 14a-8(i)(6) because the Company
Lacks the Power to Implement the Proposal.
A company may exclude a stockholder proposal under Rule 14a-8(i)(6) "[i]f the
company would lack the power or authority to implement the proposal." We believe
that the Proposal is excludable under Rule 14a-8(i)(6) because the Company
cannot guarantee that the Company's stockholders would approve an amendment to
the Company's Certificate of Incorporation, which would be necessary in order
for the Company to implement the Proposal.
As discussed in Section I, the Company could not implement the Proposal's per
capita voting requirement without first amending the Company's Certificate of
Incorporation to expressly authorize it. However, Section 242 of the DGCL
requires the Company to obtain stockholder approval before amending the
Company's Certificate of Incorporation. The Company cannot guarantee that the
Company's stockholders would approve any such amendment.
The Staff has concurred that similar proposals requiring stockholder action on
other matters in order to be implemented were excludable under Rule 14a-8(i)(6)
where, for example, a company could not ensure that stockholders would elect
independent directors. See, e.g., H.J. Heinz Co. (avail. Jun. 14, 2004)
(proposal urging the Board to amend the bylaws to require that an independent
director who has not served as an officer of the company serve as the Chairman
of the Board excludable because "it does not appear to be within the board's
power to ensure that an individual meeting the specified criteria would be
elected as director and serve as chairman of the board."); General Electric Co.
(avail. Feb. 4, 2002) (proposal recommending that the board increase
independence and that the majority of directors on the board be independent
excludable under Rule 14a-8(i)(6)). See also AT&T Corp. (avail. Mar. 10, 2002)
(proposal requesting adoption of an independent director bylaw, which would
"apply to successor companies" excludable because "it does not appear to be
within the board's power to ensure that all successor companies adopt a bylaw
like that requested by the proposal."); Putnam High Income Bond Fund (avail.
Apr. 6, 2001) (proposal requesting a reduction in the investment advisory fee
and capping fund reimbursements to the adviser excludable because the fund did
not have "the unilateral power" to implement either requirement); The Southern
Co. (avail. Feb. 23, 1995) (proposal requesting that the board of directors take
steps to ensure ethical behavior by employees serving in the public sector
excludable under the predecessor to Rule 14a-8(i)(6)). Similarly, the Company
lacks the power or authority to implement the Proposal.
The attached legal opinion provided by Potter Anderson & Corroon LLP concurs
that the Company does not have the power and authority to implement the
Proposal. See Exhibit B. Thus, for the reasons set forth above, we believe the
Proposal is excludable under Rule 14a-8(i)(6) as beyond the Company's power to
implement
III. The Proposal is Vague and Indefinite and Thus May Be Excluded under Rule
14a-8(i)(3).
Rule 14a-8(i)(3) allows the exclusion of a stockholder proposal if the proposal
or supporting statement is contrary to any of the Commission's proxy rules or
regulations (including Rule 14a-9). We believe that the Proposal is so vague and
indefinite that it violates the Rule 14a-9 prohibition on materially false and
misleading statements.
The Staff has consistently taken the position that vague and indefinite
stockholder proposals are excludable under Rule 14a-8(i)(3) because "neither the
stockholders voting on the proposal, nor the company in implementing the
proposal (if adopted), would be able to determine with any reasonable certainty
exactly what actions or measures the proposal requires." Staff Legal Bulletin
No. 14B (Sept. 15, 2004). Moreover, a proposal is sufficiently vague and
indefinite so as to justify exclusion where a company and its stockholders might
interpret the proposal differently, such that "any action ultimately taken by
the [c]ompany upon implementation of the proposal could be significantly
different from the actions envisioned by the shareholders voting on the
proposal." Fuqua Industries, Inc. (avail. Mar. 12, 1991).
The Staff has applied this long line of precedent to stockholder proposals
concerning executive compensation and on many occasions concurred with the
exclusion of such proposals under Rule 14a-8(i)(3) where aspects of the
proposals created ambiguities that resulted in the proposals being vague or
indefinite. For example, in Safescript Pharmacies, Inc. (avail. Feb. 27, 2004),
the Staff concurred that the company could exclude a proposal requesting that
stock options be "expensed in accordance with FASB guidelines," because FASB
permits two methods of expensing stock-based compensation. In Woodward Governor
Co. (avail. Nov. 26, 2003), the Staff concurred with exclusion under Rule
14a-8(i)(3) of a proposal requesting that "compensation" for the "executives in
the upper management (that being plant managers to board members)" be based on
stock growth, because the proposal did not clearly explain how the executives
would be compensated "based on stock growth." In Pfizer Inc. (avail. Feb. 18,
2003), the Staff concurred with exclusion of a proposal requesting that the
board make all stock options to management and the board of directors at no less
than the "highest stock price," because it was unclear whether the proposal
addressed only future grants or additionally required the company to amend all
stock options. Likewise, in General Electric Co. (avail. Feb. 5, 2003), the
Staff concurred with the exclusion of a proposal requesting board to seek
stockholder approval "for all compensation for Senior Executives and Board
members not to exceed more than 25 times the average wage of hourly working
employees," because the proposal failed to describe what the Company's
stockholders would be asked to approve if the levels of executive compensation
exceeded the prescribed limits. Finally, in General Electric Co. (avail. Jan.
23, 2003), the Staff concurred with the exclusion of a proposal seeking "an
individual cap on salaries and benefits of one million dollars for General
Electric officers and directors" because the proposal failed to adequately
define critical terms included in the proposal and to provide guidance on how
the proposal should be implemented.
As explained in detail below, this precedent supports the conclusion that the
Proposal is inherently vague and misleading in three respects: (A) it is unclear
what compensation the Proposal applies to; (B) the scope of the Proposal's
stockholder approval provision is unclear; and (C) the text of the Bylaw
provisions set forth in the Proposal contains vague and conflicting statements
as to how these provisions interacts with deducibility limitations set forth in
the Internal Revenue Code (the "Code").
A. It is Unclear What Items of Compensation the Proposal Applies to.
The Proposal is directed at "annual compensation in excess of the limits
established by the Code for deductibility of employee remuneration" (emphasis
added). The Proposal's reference to "annual compensation" is vague and
indefinite. The term "annual compensation" is not defined in the Proposal.
Stockholders are familiar with the term because it is the required heading for
three columns in the Summary Compensation Table in Item 402 of Regulation S-K
(Salary, Bonus and Other Annual Compensation), and thus may understand the
Proposal to address only these three forms of compensation. However, there is no
indication that the Proponent intends this meaning of "annual compensation" to
apply. In fact, the Bylaw text set forth in the Proposal specifically applies to
stock options and to long-term incentive compensation, both of which are outside
of the definition of "annual compensation" in Item 402 of Regulation S-K.
The scope of the term "annual compensation" also is not clarified under the
Code. As addressed further below, the Proposal seems to implicate the provisions
of Code Section 162(m), which imposes a $1 million limit on the deductibility of
compensation that is not "performancebased." However, the term "annual
compensation" is not used in Section 162(m),1 nor is it defined elsewhere in the
Code or the implementing regulations.
In the absence of a clear standard under either the Proposal or relevant
authority, neither stockholders considering the Proposal nor the Company, if it
were to seek to implement the Proposal, would know what compensation it
addresses. The Proposal's reference to "annual compensation" is similar to the
reference in a proposal submitted to PepsiCo, Inc. requesting that "the Top
Salary be `capped' at $1,000.000.00 to include bonus, perks, stock options, and
this be pro-rated each year." PepsiCo, Inc. (avail. Feb. 18, 2003). The Staff
granted no-action relief to PepsiCo under Rule 14a-8(i)(3) where PepsiCo
asserted that the reference to salary to be "capped" was a vague and indefinite
term since PepsiCo and its stockholders would not know whether it referenced "an
annual salary cap or an aggregate $1,000,000 lifetime salary limitation." Id.
See also Safescript Pharmacies, Inc. (avail. Feb. 27, 2004) (proposal requesting
that stock options be "expensed in accordance with FASB guidelines" where FASB
permits two methods of expensing stock-based compensation); Woodward Governor
Co. (avail. Sept. 18, 2003) (supporting statements provided contradictory
interpretations of "compensation" by providing a fixed formula for all
compensation and also suggesting that only the option portions of "compensation"
were implicated). Accordingly, the Proposal's reference to "annual compensation"
renders the Proposal vague and indefinite.
B. The Scope of the Proposal's Stockholder Approval Provision is Unclear.
The Proposal's references to obtaining stockholder approval are similarly vague
and indefinite as it is unclear what the Company would be required to ask its
stockholders to approve before the prescribed "limits" could be exceeded. The
Proposal requires stockholder approval before the Company could "pay" certain
compensation. This standard provides no guidance as to when stockholder approval
must be obtained. For example, with respect to stock options, it is unclear
whether stockholder approval is required within one year prior to the grant of
an option or within one year prior to its exercise. As another example, it is
unclear when incentive bonuses with multi-year targets would have to be approved
by shareholdersit could be the year the targets are established, each year as
the bonuses "vest," or the year in which the bonus is actually paid. In
contrast, the last paragraph of the supporting statement expresses the
Proponent's belief that "it is reasonable to require our company to fully
disclose to shareholders both the costs and the terms of its executive
compensation plans, if the Board wishes to pay executives more than the amounts
that are generally deductible under federal income taxes." This suggests that
the Proposal intends for the Company to satisfy the stockholder approval
requirement by asking stockholders to approve in advance certain types of
compensation under the Company's executive compensation plans rather than
compensation for specific officers. See, e.g., General Electric Co. (avail. Feb.
5, 2003) (finding a proposal excludable as vague and indefinite where the
proposal failed to describe what the company's stockholders would be asked to
approve if the levels of executive compensation exceeded the prescribed
threshold). Thus, the Proposal's stockholder approval provision is vague and
indefinite under Rule 14a-8(i)(3).
C. The Proposal Contains Conflicting and Ambiguous Statements With Respect to
its Operation and Interaction with the Internal Revenue Code.
The Proposal seeks to prohibit the Company from compensating any officer "in
excess of the limits established by the Internal Revenue Code for deductibility
of employee remuneration" without first obtaining stockholder consent, but sets
forth exceptions and qualifications to this prohibition. While not explicitly
stated in the Proposal, the references in the supporting statements to the Code
indicate that the Proposal primarily addresses the limitations on deductible
compensation set forth in Section 162(m) of the Code.2 Section 162(m)
establishes a $1 million limitation on the deductibility of compensation earned
by certain executive officers, other than compensation that satisfies the Code's
standard for "performance-based compensation."
3 Under Section 162(m) and the
applicable regulations, compensation qualifies as "performance-based
compensation" that is not subject to a limitation on deductibility if, among
other things: (1) it is established pursuant to an objectively determinable
performance standard (subject to "negative discretion"); (2) it is awarded by,
and satisfaction of the performance standard is confirmed by, a committee of
outside directors; and (3) the performance criteria were approved by
stockholders. Generally, stockholder approval may be obtained within five years
prior to the date the compensation is earned, although under some arrangements
stockholder approval may be obtained more than five years in advance. Thus, if
the "performance-based compensation" standards of Section 162(m) are satisfied,
the performance-based compensation is deductible regardless of whether other,
non-performance-based compensation taxable to the executive in a year exceeds $1
million.
The Proposal is inherently misleading because it contains conflicting or
ambiguous statements as to how the standards and conditions contained in the
Proposal would interact with the Code. Specifically, the first paragraph of the
Proposal provides "no officer of the Corporation shall receive annual
compensation in excess of the limits established by the U.S. Internal Revenue
Code for deductibility of employee remuneration, without approval by a vote of
the majority of the stockholders within one year preceding the payment of such
compensation." This suggests that if compensation is deductible under Section
162(m), such compensation is not affected by the Proposal. However, the
Proposal's second paragraph provides that additional criteria different from the
criteria under Section 162(m) must also be satisfied in order for compensation
to be excluded from the proposed limit on executive compensation. These
additional criteria are as follows: "in the case of performance-based
compensation, the Corporation shall first have disclosed to stockholders the
specific performance goals and standards adopted for any performance-based
compensation plan, including any schedule of earned values under any long-term
or annual incentive plan" and "in the case of incentive stock options, the
Corporation shall record as an expense on its financial statements the fair
value of any stock options granted."
4 Thus, it is unclear whether the second
paragraph of the Proposal's Bylaw language (1) imposes conditions that must be
satisfied with respect to compensation that does not meet the Section 162(m)
definition of "performance-based compensation," or (2) instead, sets forth
additional conditions that must be satisfied with respect to any compensation in
excess of $1 million in order to be payable under the Bylaw provision.
The difference between these two possible interpretations is significant. For
example, if an executive who receives $1 million in salary (which is not
"performance-based compensation" under either Section 162(m) or the Bylaw's
standard) is to exercise a stock option granted under a stockholder-approved
plan administered by "outside directors," that stock option would not be
affected under the first reading of the Proposal's Bylaw language described
above, since it would be deductible as performance-based compensation under
Section 162(m). However, under the alternative reading of the Proposal, that
stock option exercise could not occur unless the option also satisfied the
conditions set forth in the Proposal.
The supporting statements in the Proposal fail to clarify this material
ambiguity. For example, in one paragraph the statement acknowledges that the
Code imposes a $1 million limit on the deductibility of compensation but that
the Code provides an exception for "performance-based compensation." However,
the next paragraph states that a company would be able to pay
"`performance-based compensation' in excess of the deductibility limit" only if
the conditions set forth in the second paragraph of the proposed Bylaw language
were satisfied. It is not clear to either stockholders considering the Proposal,
or the Company if it were to seek to implement the proposal, whether the
reference to "the deductibility limitation" refers to any compensation in excess
of $1 million, or only that compensation that does not satisfy the Section
162(m) standard for deductibility. Similarly, it is not clear whether the
supporting statements' references to "performance-based compensation" refer to
the Section 162(m) standard or the standard set forth in the Proposal.
This ambiguity also creates uncertainty as to how the Proposal operates with
respect to executives that are not subject to the Section 162(m) limitation on
deductibility. Section 162(m) applies only to the chief executive officer and
the next four most highly paid executives (as determined under the Commission's
proxy rules based upon annual compensation), but only if those individuals
remained employed with the company as of the end of its fiscal year whereas the
Proposal would apply to all "officers."
5 Thus, it is unclear whether the
Proposal means that compensation in excess of $1 million can be paid to an
executive officer who is not subject to Section 162(m)'s limitation on
deductible compensation without condition (since any compensation in excess of
$1 million paid to such an executive is deductible), or whether such
compensation can be paid only if one of the conditions set forth in the Bylaw
language is satisfied (i.e., stockholder approval during the year before amounts
are paid, or satisfaction of the requirements for exclusion set forth in the
second paragraph of the Bylaw language).
Finally, the Proposal is vague and misleading because the proposed Bylaw text is
internally inconsistent. The first paragraph expressly states that "the only
exception" to its limitation is "interference with un-removable contractual
obligations prior to this proposal." And yet, the second paragraph of the Bylaw
text contains other exceptions that are available for excluding compensation
from the limit set forth in the first paragraph.
Each of these conflicts, ambiguities and inconsistencies means that the proposed
Bylaw text could be read by different persons as having different effects.
Neither stockholders considering the Proposal, nor the Company if it were to
implement the Proposal, would know which interpretation the proposed Bylaw
language intended. Past Staff no-action letters support our contention that such
widely varying results render the Proposal vague and indefinite under Rule
14a-8(i)(3). For example, in Otter Tail Corporation (avail. Dec. 8, 2003), the
Staff concurred that a proposal requesting that future executive salary and
stock option plans be changed to "limit" any benefits for either salary or stock
options for five years could be excluded under Rule 14a-8(i)(3) because the
language of the proposal was so vague that the stockholders would be unable to
determine either the meaning of the proposal or the consequences of its
implementation. Just as the Otter Tail proposal was vague because it provided no
guidance on the referenced "limit," the Proposal is similarly vague because it
contains conflicting statements as to what compensation is subject to its
limitations.
D. Accordingly, the Proposal is Excludable under Rule 14a-8(i)(3) and Rule
14a-8(i)(6).
Given these ambiguities, it is unclear what actions any stockholders voting for
the Proposal would expect the Company to take and what actions the Company would
be required to take if the Proposal were adopted. Thus, the Proposal is
excludable under Rule 14a-8(i)(3) as misleading "because any action(s)
ultimately taken by [the company] upon implementation of the proposal could be
significantly different from the action(s) envisioned by shareholders voting on
the proposal." Occidental Petroleum Corp. (avail. Feb. 11, 1991). See also Dyer
v. SEC, 287 F.2d 773, 781 (8th Cir. 1961) ("it appears to us that the proposal
as drafted and submitted to the company, is so vague and indefinite as to make
it impossible for either the Board of Directors or the shareholders at large to
comprehend precisely what the proposal would entail."). As a result of these
vague and indefinite provisions in the Proposal, the Proposal is excludable
under Rule 14a-8(i)(3).
Moreover, the Proposal is excludable pursuant to Rule 14a-8(i)(6) since it is
vague and ambiguous, with the result that a company "would lack the power to
implement" the Proposal. A company "lacks[s] the power or authority to
implement" a proposal when the proposal "is so vague and indefinite that [the
company] would be unable to determine what action should be taken." Int'l
Business Machines Corp. (avail. Jan. 14, 1992). As noted above, the Proposal
contains so many ambiguities that it would be impossible for the Company to
implement it. The Proposal refers to the "limits established by the U.S.
Internal Revenue Code for deductibility of employee remuneration," and the
supporting statements provide conflicting advice as to the "limits" to be
imposed. Thus, it is unclear what the Company would ask its stockholders to
approve if the "limits" were to be exceeded. Because it would be impossible for
the Company to determine what action should be taken under the Proposal, the
Proposal also may be excluded from the 2005 Proxy Materials under Rule
14a-8(i)(6).
IV. The Proposal May Be Excluded, unless Revised, pursuant to Rule 14a-8(i)(7)
because the Proposal Applies to General Employee Compensation.
Rule 14a-8(i)(7) provides that a company may omit a proposal from its proxy
materials if it "deals with a matter relating to the company's ordinary business
operations." The purpose of Rule 14a-8(i)(7) is to allow companies to exclude
stockholder proposals that deal with ordinary business on which stockholders, as
a group, "would not be qualified to make an informed judgment, due to their lack
of business experience and their lack of intimate knowledge of the issuer's
business." See Exchange Act Release No. 34-12999 (November 22, 1976). The Staff
has consistently taken the position that stockholder proposals relating to
general employee compensation issues, as distinguished from proposals addressing
the compensation of senior executives and directors, fall within a company's
ordinary business operations and are, therefore, excludable under Rule
14a-8(i)(7). See, e.g., El Paso Energy (avail. Mar. 8, 2001) (proposal
requesting limits on the compensation of "any corporate officer" excludable
unless revised).
The Proposal's subject matter relates to general compensation matters
fundamental to management's ability to run the Company effectively because the
Proposal is not limited to senior executive officers but instead states that "no
officer of the Corporation" shall receive annual compensation beyond the limits
set forth in the Proposal (emphasis added). See, e.g., Storage Technology
Corporation (avail. Apr. 10, 2003). Accordingly, the Proposal would restrict the
Company's ability to determine the levels of compensation paid to the Company
officers generally. By referencing all of the Company's officers, the Proposal
applies to more than 66 Company employees. The type and amount of compensation
paid to the Company's officers requires an intimate understanding of the
Company's business, competitive position, prospects and numerous other factors,
including the particular duties of individual employees and their present and
potential contributions to the success of the Company, which stockholders
generally do not possess. Because the factors that are considered in determining
compensation are unlikely to be within the knowledge of the stockholders, the
level and form of such compensation should appropriately be left, as an ordinary
business matter, to the Company's management and Board of Directors.
We acknowledge the statement in Staff Legal Bulletin No. 14 that "[i]f it is
unclear whether the proposal focuses on senior executive compensation or
director compensation, as opposed to general employee compensation, we may
permit the shareholder to make this clarification." See also SBC Communications,
Inc. (avail. Feb. 5, 2003) (proposal requesting limits on the compensation of
"members of corporate management" excludable unless revised); Mirant Corp.
(avail. Jan. 28, 2003) (proposal requesting limits on the compensation of
"executives" excludable unless revised); American Express (avail. Jan. 16, 2003)
(proposal requesting limits on the compensation of "higher management"
excludable unless revised); ConocoPhillips (avail. Mar. 13, 2002) (proposal
requesting limits on the compensation of "Chairman and other officers"
excludable unless revised); Milacron (avail. Jan. 24, 2001) (proposal requesting
limits on the compensation of "all officers and top management" excludable
unless revised). Accordingly, we request the Staff's concurrence that the
Company may omit the Proposal from the 2005 Proxy Materials under Rule
14a-8(i)(7), unless the Proponent revises the Proposal to apply only to the
Company's executive officers, because the Proposal implicates the Company's
ordinary business operations.
V. The Proponent's Identifying Information is Excludable From The Proposal
pursuant to Rule 14a-8(l)(1).
Rule 14a-8(l)(1) permits the Company to exclude a Proponent's name, address and
number of voting securities held so long as the Company includes a statement
that the Company will promptly provide such information to stockholders upon
receiving an oral or written request. The Proponent has included his name and
address in the Proposal's third paragraph. Staff Legal Bulletin No. 14 (July 13,
2001) makes clear that the name of the Proponent, even if included in the
Proposal or supporting statement thereto, may be omitted. See also Wyeth (avail.
Dec. 23, 2003) (finding that the sentence identifying the proponent and the
proponent's address was excludable). Therefore, the Company intends to omit the
Proposal's third paragraph, which contains the Proponent's name and address. The
Company requests the Staff's concurrence that such language may be stricken from
the Proposal.
CONCLUSION
Based upon the foregoing analysis, we respectfully request that the Staff concur
that it will take no action if the Company excludes the Proposal from its 2005
Proxy Materials. If the Staff permits the Proponent to make the revisions
necessary to bring the Proposal within the requirements of the proxy rules, we
respectfully request explicit confirmation from the Staff that any revised
Proposal must satisfy the 500-word limitation set forth in Rule 14a-8(d). We
believe it is important to request this confirmation in advance in order to
avoid the issue arising at a time when the Company is attempting to finalize its
proxy statement.
We would be happy to provide you with any additional information and answer any
questions that you may have regarding this subject. If we can be of any further
assistance in this matter, please do not hesitate to call me at (202) 955-8671
or John Clarson, the Company's Assistant Corporate Secretary and Senior
Corporate Attorney, at (817) 415-2988.
Sincerely,
/s/
Ronald O. Mueller
ROM/eai
Enclosures
cc: John Clarson, RadioShack Corporation
William Steiner
John Chevedden
-----FOOTNOTES-----
1 Instead, Section 162(m) references "employee remuneration," which is defined
as "the aggregate amount allowable as a deduction under this chapter for such
taxable year (determined without regard to this subsection) for remuneration for
services performed by such employee (whether or not during the taxable year),"
certain commission-based remuneration and qualifying "remuneration payable
solely on account of the attainment of one or more performance goals."
2 Another provision of the Code that limits the deductibility of compensation is
Section 280G, which denies a deduction for certain "excess parachute payments,"
as defined in the Code and applicable regulations. That provision appears not to
be relevant to the Proposal.
3 Section 162(m) also enumerates certain other types of compensation that are
excluded from the deductibility limitation.
4 These additional criteria, which are set forth in subparts (a) and (b) of the
Proposal, are not contained in Section 162(m) or elsewhere in the Internal
Revenue Code.
5 Because Section 162(m) applies only to executives employed as of fiscal
year-end, it differs from the Commission's rules on who is included in the
Summary Compensation Table.
[INQUIRY LETTER]
January 28, 2005
6 Copies
7th Copy for Date-Stamp Return
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
RadioShack Corporation (RSH)
Shareholder Position on Company No-Action Request
Rule 14a-8 Proposal: Executive Pay Topic
Shareholder: William Steiner
Ladies and Gentlemen:
In a separate no action request another company claims "the majority of the
stockholders" text of this proposal could have 3 meanings. One of these meanings
includes "approval by a majority of the shares outstanding ..." which does not
seem to be per capita voting.
If RadioShack insists on choosing the least workable meaning from 3 meanings for
"the majority of stockholders," which it has no need to do, then the company
could then concurrently adopt per capita voting under Delaware law.
In Schering-Plough Corporation (January 18, 2005) the Staff appears to have not
concurred with a company argument that a company could not do two things
concurrently - implement a proposal for a bylaw to destagger the board and
concurrently amend its articles of incorporation to be consistent with the bylaw
change.
The second opinion is believed to be incomplete. It does not argue that it would
be impossible to concurrently amend the company's certificate of incorporation
for per capita voting.
Rule 14a-8(i)(6)
The attached November 24, 2004 "Oracle Press Release" quotes Oracle Chairman
Jeff Henley using "majority of the stockholders" interchangeably with majority
vote or one share, one vote: "Though a large majority of the stockholders have
already indicated their desire to sell, the current board appears intent on
obstructing the will of the stockholders," Henley said. "We plan to give them a
choice (emphasis added)." Oracle is a Delaware corporation.
The company disingenuously claims that it has a de-facto "Absence of
Power/authority" cited in rule 14a-8(I)(6) because "the Company cannot guarantee
that the Company's shareholders would approve an amendment to the Company's
certificate of incorporation ...." Then the company disingenuously cites a
number of purported precedents (such as "to ensure ethical behavior by
employees") that do not rely on a shareholder approval in any manner.
Statement From a Professional Proxy Solicitor
The company also lacks any back-up statement from a professional proxy solicitor
on the likelihood of obtaining the vote needed.
To facilitate proposal acceptance this shareholder proposal was drafted based on
the text of the proposal in The MONY Group Inc. (February 18, 2003) which had
already been decided by the Office of Chief Counsel. The text of the Staff Reply
Letter follows:
[STAFF REPLY LETTER]
February 18, 2003
Response of the Office of Chief Counsel Division of Corporation Finance
Re: The MONY Group Inc.
Incoming letter dated December 26, 2002
The proposal would amend MONY's by-laws to limit any officer from receiving
annual compensation in excess of the limits established by the U.S. Internal
Revenue Code for deductibility of employee enumeration, without approval by a
majority of the stockholders within one year preceding the payment of such
compensation.
We are unable to concur in your view that MONY may exclude the proposal under
rule 14a-8(b). Accordingly, we do not believe that MONY may omit the proposal
from its proxy materials in reliance on rule 14a-8(b).
We are unable to conclude that MONY has met its burden of establishing that the
proposal would violate applicable state law. Accordingly, we do not believe that
MONY may omit the proposal from its proxy materials in reliance on rules
14a-8(i)(2) and 14a-8(i)(6).
Sincerely,
/s/
Alex Shukhman
Attorney-Advisor
We believe that the MONY precedent should be upheld and that the company no
action request not be concurred with.
Additionally there are a number of defects in the company no action request such
as:
Contrary to the purported company analogy there is no text in this proposal
similar to a "Top Salary" being "capped."
The company does not claim that shareholders are unfamiliar with the concept of
"annual compensation" in spite of the fact that companies have devised a vast
number of complex formulas to calculate "annual compensation."
Obfuscation of Pay Issue
The following quote is in regard to the company claim that its position should
be favored because of the complex structure of executive compensation.
"One of the great, as-yet-unsolved problems in the country today is executive
compensation and how it its determined."
SEC Chairman William Donaldson, 2003
This quote is from "Pay without Performance, the Unfulfilled Promise of
Executive Compensation," 2004, by Lucian Bebchuk, Professor of Law and Jesse
Fried, Professor of Law. The quote is at the beginning of Chapter 15, Improving
Executive Compensation.
The following headline, sub-headline and text is from the January 9, 2005 issue
of the Los Angeles Times:
"SEC Chief Bent On Reform
"* William H. Donaldson says he is taking aim at executive pay and fund trading
abuses in 2005.
"Despite friction with business lobbyists, it appears that the SEC chairman will
continue as Washington's top cop for the investment world, pursuing an
aggressive 2005 agenda that will take aim at issues including executive pay and
the mechanics of stock trading.
In an interview, Donaldson ..."
Reference:
http://www.latimes.com/business/la-fi-sec9jan09,0,6106173.story?coll=la-home-business
According to "Pay without Performance, the Unfulfilled Promise of Executive
Compensation," 2004, by Lucian Bebchuk, Professor of Law and Jesse Fried,
Professor of Law, page 21:
"Indeed it its worth noting that although star athletes are highly paid, some
more than the average S&P 500 CEO, their compensation arrangements lack the
features of executive pay arrangements that managerial influence produces. After
the compensation packages of star athletes are negotiated, clubs have little
reason to try to camouflage the amount of pay and to channel pay through
arrangements designed to make the pay less visible. While athletes are paid
generously during the period of their contracts, clubs generally do not provide
them with a large amount of compensation in the form of postretirement perks and
payments. Clubs also generally do not provide athletes with complex
deferred-compensation arrangements that serve to obscure total pay. And when
clubs get rid of players, they do not provide athletes with large gratuitous
payments in addition to the players' contractually entitled payouts. As we shall
see, however, these are all common practices in the area of executive
compensation."
Also according to "Pay without Performance, the Unfulfilled Promise of Executive
Compensation," page 67:
"That gives you an idea of the nature of the disclosures [in the executive
compensation section]: it was legalistic, turgid, and opaque; the numbers were
buried somewhere in the fourteen pages. Someone once gave a series of
institutional investor analysts a proxy statement and asked them to compute the
compensation received by the executive covered in the proxy statement. No two
analysts came up with the same number. The numbers that were calculated varied
widely."
I believe this proposal is consistent with SLB No. 14A, particularly with the
following text:
* We do not agree with the view of companies that they may exclude proposals
that concern only senior executive and director compensation in reliance on rule
14a-8(i)(7).5
The Commission has previously taken the position that proposals relating to
ordinary business matters "but focusing on sufficiently significant social
policy issues ... generally would not be considered to be excludable, because
the proposals would transcend the day-to-day business matters and raise policy
issues so significant that it would be appropriate for a shareholder vote." 6
The Division has noted many times that the presence of widespread public debate
regarding an issue is among the factors to be considered in determining whether
proposals concerning that issue "transcend the day-to-day business matters." 7
We believe that the public debate regarding shareholder approval of equity
compensation plans has become significant in recent months. Consequently, in
view of the widespread public debate regarding shareholder approval of equity
compensation plans and consistent with our historical analysis of the "ordinary
business" exclusion, we are modifying our treatment of proposals relating to
this topic.8
I believe this proposal raises public policy issues so significant that it would
be appropriate for a shareholder vote. Furthermore the company has not shown
that shareholders would not understand the principle of this proposalto subject
high levels of executive pay to shareholder vote.
The company is implicitly arguing that since companies fail to make executive
pay as transparent and quantifiable as that of other highly paid employees, such
as star athletes, that companies should be able to exploit their obfuscation of
pay and use it as a grounds to exclude shareholder proposals on executive pay.
The no action process makes it abundantly clear that companies have access to
corporation law experts who claim to be capable of making sense of text that
would be obscure to the small shareholders.
Contrary to the company argument, rule 14a-8(i)(6) does not contain the word
"guarantee." Significantly the company fails to claim that the company is
completely powerless to implement the proposal. The company more than likely has
the power to implement the proposal in terms of obtaining the required number of
votesespecially if the company sponsors the proposal in its proxy materials,
recommends a yes-vote and solicits shares that are slow in casting ballots.
The company argument is incomplete because it does not even address the fact
that the company clearly has the power to seek the required shareholder vote at
more than one annual meeting. The company does not claim that the proposal has a
time limit.
The company gives no past example of its purported powerlessness in obtaining
shareholder votes for its own ballot items. The company failed to name a single
company ballot item in the past decade on which the required shareholder vote
was not obtained for the company's own ballot items.
The company does not address its power to amend its certificate of incorporation
and the great persuasive power the company has by recommending shareholders
approve a company ballot item.
There is an analogy to professional football in regard to the company's power to
implement. All NFL football teams have the power to make a touchdown. That does
not mean that a team can "guarantee" that it will make a touchdown in a given
game. And the fact that no team can guarantee that it will make a touchdown
during a given game does not mean that any NFL team lacks the power to make a
touchdown.
Rule 14a-8(i)(6)
The company does not address whether "majority of the stockholders" is commonly
used by the management of companies and corporate governance academia
interchangeably to mean majority vote or one share, one vote.
Additional text at the beginning of the proposal makes it clear in calling for
"shareholder approval." "Shareholder approval" is consistent with one share, one
vote: "This proposal would require that our company not pay any executive
compensation in excess of the amount the Internal Revenue Code permits to be
deducted as an expense for federal income tax purposes, without first securing
shareholder approval."
The attached November 24, 2004 "Oracle Press Release" quotes Oracle Chairman
Jeff Henley using "majority of the stockholders" interchangeably with majority
vote or one share, one vote: "Though a large majority of the stockholders have
already indicated their desire to sell, the current board appears intent on
obstructing the will of the stockholders," Henley said. "We plan to give them a
choice (emphasis added)." Oracle is a Delaware corporation.
In the alternative SLB No. 14 allows shareholders under limited circumstances to
revise their proposals and we would be glad to do so:
5. When do our responses afford shareholders an opportunity to revise their
proposals and supporting statements?
We may, under limited circumstances, permit shareholders to revise their
proposals and supporting statements.
For these reasons it is respectfully requested that concurrence not be granted
to the company and that the MONY precedent should be upheld.
Since the company has had the first word in the no action process it is
respectfully requested that the proponent have the opportunity for the last word
in the no action process.
Sincerely,
/s/
John Chevedden
cc:
William Steiner
Mark Hill
[APPENDIX1]
3.Subject Non-Deductible Executive Compensation to Shareholder Vote
RESOLVED, shareholders recommend that our Corporation's by-laws be amended by
adding the following new Section:
"Section A.1. Executive Compensation. From the date of adoption of this section
no officer of the Corporation shall receive annual compensation in excess of the
limits established by the U.S. Internal Revenue Code for deductibility of
employee remuneration, without approval by a vote of the majority of the
stockholders within one year preceding the payment of such compensation. The
only exception would be interference with un-removable contractual obligations
prior to this proposal.
For purposes of the limit on executive compensation established by this Section,
the Corporation may exclude compensation that qualifies either as
"performance-based compensation" or as an "incentive stock option" within the
meaning of the Internal Revenue Code only if:
(a) in the case of performance-based compensation, the Corporation shall first
have disclosed to stockholders the specific performance goals and standards
adopted for any performance-based compensation plan, including any schedule of
earned values under any long-term or annual incentive plan; and
(b) in the case of incentive stock options, the Corporation shall record as an
expense on its financial statements the fair value of any stock options
granted."
This proposal was submitted by William Steiner, 112 Abbottsford Gate, Piermont,
NY 10968.
This proposal would require that our company not pay any executive compensation
in excess of the amount the Internal Revenue Code permits to be deducted as an
expense for federal income tax purposes, without first securing shareholder
approval.
Currently, the Code provides that publicly held corporations generally may not
deduct more than $1 million in annual compensation for any of the company's five
highest-paid executives. The Code provides an exception for certain kinds of
"performance-based compensation."
Under this proposal our company would be able to pay "performance-based
compensation" in excess of the deductibility limit, so long as the company has
disclosed to shareholders the performance goals and standards the Board has
adopted under these plans. This proposal also provides an exception for
incentive stock options, if the Board has recorded the expense of such options
in its financial statements.
A proposal similar to this was submitted by Amanda Kahn-Kirby to MONY Group and
received a 38% yes-vote as a more challenging binding proposal at the MONY 2003
annual meeting. The 38% yes-vote was more impressive because:
1) This was the first time this proposal was ever voted.
2) The proponent did not even solicit shareholder votes.
I think it is reasonable to require our company to fully disclose to
shareholders both the costs and the terms of its executive compensation plans,
if the Board wishes to pay executives more than the amounts that are generally
deductible under federal income taxes.
Notes:
This proposal is believed to conform with Staff Legal Bulletin No. 14B (CF),
September 15, 2004.
The name and address of the proponent are part of the argument in favor of the
proposal. A published name and address confirms that the proposal is submitted
by a proponent who has the conviction to be named in the proxy - just as
management is named in the proxy.
The above format is the format submitted and intended for publication.
The company is requested to assign a proposal number (represented by "3" above)
based on the chronological order in which proposals are submitted. The requested
designation of "3" or higher number allows for ratification of auditors to be
item 2.
Please note that the title of the proposal is part of the argument in favor of
the proposal.
In the interest of clarity and to avoid confusion the title of this and each
other ballot item is requested to be consistent throughout the proxy materials.
Please advise if there is any typographical question.
Verification of stock ownership will be forwarded.
[STAFF REPLY LETTER]
February 28, 2005
Response of the Office of Chief Counsel Division of Corporation Finance
Re: RadioShack Corporation Incoming letter dated January 18, 2005
The proposal recommends that RadioShack amend its bylaws so that no officer may
receive annual compensation in excess of the limits established by the U.S.
Internal Revenue Code for deductibility of employee remuneration, without
approval by a vote of "the majority of the stockholders," subject to the
conditions and exceptions contained in the proposal.
There appears to be some basis for your view that RadioShack may exclude the
proposal under rule 14a-8(i)(2). We note that in the opinion of your counsel,
implementation of the proposal would cause RadioShack to violate state law.
Accordingly, we will not recommend enforcement action to the Commission if
RadioShack omits the proposal from its proxy materials in reliance on rule
14a-8(i)(2). In reaching this position, we have not found it necessary to
address the alternative bases for omission upon which RadioShack relies.
Sincerely,
/s/
Heather L. Maples
Special Counsel
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