Plumear re free reign in determining compensation you said:
...."Jim, perhaps I've forgotten all the facts surrounding the IDCC compensation issue. I am possibly projecting my impression of many of the other executives recently profiled in scandals who have exercised virtual free rein in determining their remuneration. I believe it is true that many of these have taken advantage of the insulated position they have between themselves and shareholders. I do also think that shareholders have a right to be indignant and to question the levels of reward these executives allow themselves."
If you have forgotten the compensation facts, let me share them with you. IDCC had a two-person compensation committee composed of Mr. Campagna and Mr. Roath from 1997 until the very end of 2003/beginning of 2004, when the finally expanded it to four directors. The following is from an excerpt of an email that I sent to IDCC's Directors in May 2004 detailing my compensation concerns:
(1) The very high levels of compensation granted to Mr. Campagna and Mr. Roath for supposedly part-time services furnished by individuals with no previous wireless industry experience.
I know Mr. Campagna does not receive a salary, but the value of the restricted stock units and stock options that he is granted each year for services as Chairman of the Board and director clearly places him at the very top in compensation at IDCC year after year. From the latest published proxy in 2004 as follows:
“In connection with his service as Chairman of the Board of Directors during 2003, Mr. Campagna was awarded 20,000 restricted stock units ("RSUs") in 2004.”
Restricted stock is free stock, and thus there is no cost at all to the recipient. Mr. Campagna was granted 20,000 RSUs in 2004 for his additional services as board chairman in 2003. In addition, he earned base compensation of 16,000 vested stock options per year and received $15,000 annual cash compensation as an outside director for 2003. Restricted Stock Units RSU’s are valued based on the market price when they are granted.
The closing market price of IDCC stock on Jan. 21, 2004, the date of this RSU grant, was $25.30. Therefore Mr. Campagna’s compensation for services as Chairman of the Board for 2003 equals $506,000 (20,000 RSUs x $25.30). I estimate the value of Mr. Campagna’s additional compensation as outside director for his 2003 services to be $270,840 (16,000 vested stock options per year x the Black-Scholes valuation of $15.99 per option for 2003 = $255,840 + $15,000 cash stipend in 2003). The Black-Scholes method of valuing stock options calculates a value of $15.99 per each IDCC stock option for 2003, $8.51 for 2002, and $8.16 for 2001 according to IDCC’s latest 10K.
Therefore Mr. Campagna's total compensation received for 2003 services as director appears to be $776,840. This would make Mr. Campagna once again the most highly compensated individual at IDCC, exceeding Mr. Goldberg’s total reported compensation of $705,495. The other four most highly compensated executives at IDCC made less than $400,000 total compensation each in 2003.
I would also imagine that Mr. Campagna might have been the most highly compensated individual at IDCC in all his previous years as board chairman, as well. The amounts of stock options, stock warrants, and restricted stock units that he has received since becoming Chairman of the Board in 1996 are unconscionable. As an outside shareholder, I have to wonder what great services has Mr. Campagna contributed to IDCC that makes him worth the following previous amounts of compensation for being board chairman:
Mr. Campagna’s compensation for service as Chairman of the Board, which does not even include his additional compensation as an outside director, from the 1997 through the latest proxy as follows:
· 1997 proxy: “In connection with his service as Chairman of the Board, Mr. Campagna was awarded a non-qualified stock option in 1996 to purchase 100,000 shares of Common Stock at an exercise price equal to the fair market value on the date of grant.”
· 1998 proxy: “In connection with his service as Chairman of the Board, Mr. Campagna was also awarded a non-qualified stock option in 1997 to purchase 360,000 shares of Common Stock at an exercise price of $5.44, being equal to the fair market value on the date of grant.”
· 1999 proxy: “In connection with his service as Chairman of the Board, Mr. Campagna was also awarded a non-qualified stock option in 1998 to purchase 100,000 shares of Common Stock at an exercise price of $4.31 being equal to the fair market value on the date of grant.”
· 2000 proxy: “In conjunction with his service as Chairman of the Board, Mr. Campagna was also awarded 40,000 shares of restricted stock in 1999, under the Company’s 1999 Restricted Stock Plan.”
· 2001 proxy: “In connection with his service and extra commitment of time as Chairman of the Board during 2000, Mr. Campagna was awarded 40,000 restricted stock units under the Company's 1999 Restricted Stock Plan (RSUs) in 2000 and 100,000 RSUs in 2001…During 2000 each of the Outside Directors was awarded RSUs in exchange for the relinquishment of a tax gross-up feature associated with previously granted restricted stock. The number of such RSUs were as follows: Mr. Campagna, 40,000;”
· 2002 proxy: “In connection with his service as Chairman of the Board of Directors during 2001, Mr. Campagna was awarded, in 2002, 75,000 restricted stock units("RSUs") and 25,000 options to purchase Common Stock under the 2000 Option Plan.”
· 2003 proxy: “In connection with his service as Chairman of the Board of Directors during 2002, in 2003, Mr. Campagna was awarded 50,000 restricted stock units (“RSUs”).”
· 2004 proxy: “In connection with his service as Chairman of the Board of Directors during 2003, Mr. Campagna was awarded 20,000 restricted stock units ("RSUs") in 2004.”
Mr. Campagna has actually received 585,000 stock options, 325,000 RSUs, and 40,000 restricted shares for his services as Chairman of the Board. I estimate that he has also received another 233,725 options and warrants for other services as an outside director. This estimate is based on the 2001 proxy total of 770,725 exercisable options/warrants beneficially owned by Mr.Campagna + 48,000 option grant upon reelection as an outside director in 2002 less the 585,000 options received as services as board chairman = 233,725 additional. The 2001 proxy total appears to be the height of Mr. Campagna’s exercisable stock option ownership. I believe that Mr. Campagna has to be one of the highest compensated non-executive board chairmen of any small-cap company of less then 1 billion dollars.
Concerning Mr. Roath’s extra compensation, from the latest proxy as follows:
“In connection with his service on the Board of Directors during 2003, Mr. Roath was awarded 8,000 RSUs in 2004.”
This extra compensation for Mr. Roath of 8,000 RSUs is in addition to the normal compensation of the other outside directors. Mr. Roath’s RSUs were granted on Jan. 21, 2004 when the closing market price was $25.30 per share. Thus Mr. Roath’s additional compensation for 2003 director services equaled $202,400.
I estimate the value of Mr. Roath’s base compensation as outside director to be $270,840 (16,000 vested stock options per year x the Black-Scholes valuation of $15.99 per option for 2003 = $255,840 + $15,000 cash stipend in 2003). Thus Mr. Roath’s total compensation received for 2003 services appears to be $473,240. This would also make Mr. Roath one of the three most highly compensated individuals at IDCC in 2003, along with Mr. Campagna.
Additional compensation to Mr. Roath over the years, beyond the basic outside director compensation, as follows:
· 1998 proxy: “In connection with his service as an Outside Director, Mr. Roath was also awarded a non-qualified stock option in 1997 to purchase 45,000 shares of Common Stock (of which 7,500 are currently exercisable) at an exercise price of $5.44, being equal to the fair market value on the date of grant. The foregoing options vest in six equal biannual installments over three years."
· 2001 proxy: “In connection with his service on the Board during 2000, Mr. Roath was awarded 10,000 options to purchase Common Stock in 2000 under the Company's 1997 Stock Option Plan for Outside Directors and 20,000 RSUs in 2001. During 2000 each of the Outside Directors was awarded RSUs in exchange for the relinquishment of a tax gross-up feature associated with previously granted restricted stock. The number of such RSUs were as follows: Mr. Campagna, 40,000; Mr. Colson, 12,000; Mr. Clontz, 12,000; and Mr. Roath, 12,000. The RSUs do not carry voting rights."
· 2004 proxy: “In connection with his service on the Board of Directors during 2003, Mr. Roath was awarded 8,000 RSUs in 2004.”
Neither Mr. Campagna nor Mr. Roath have wireless industry experience. Both individuals are supposedly performing services that are part-time in nature rather than full-time. Why are two independent outside directors among the most highly compensated individuals at IDCC? This compensation is very unusual, and needs to be fully explained and justified to the outside shareholders.
What type of additional service did Mr. Roath do to deserve these extra grants of stock options and RSUs, and who determined it? Who determines Mr. Campagna’s annual compensation? If it was the compensation committee, of which Mr. Roath and Mr. Campagna were a two-person board until just recently, then there appears to be conflict of interest. When highly compensated individuals within a corporation are on its compensation committee, it has the appearance that they could be granting themselves unwarranted excessive compensation for their own services.
My suggestion would be for both Mr. Campagna and Mr. Roath to resign from IDCC’s Compensation Committee immediately. If their services are worth their extremely high compensation levels, then they are probably not truly independent outside directors and therefore should not be on the Compensation Committee. If their services are not really that extensive in time devoted to the company, then they are clearly overcompensated and have a conflict of interest by remaining on the Compensation Committee.
AI
