InterDigital Inc (IDCC)

[rmarchma]

Bluesky your comments re compensation issues in bold as follows:

I dunno', Ronny. It's bad enough that you insist on using deeply flawed data to judge IDCC's executive compensation program but now you want to go after the board too!

I’ll deal with the “flawed data” comment later. I’ve been going after the board of directors for excessive compensation for some time, it’s nothing brand new. You just brought out some new information that I was not aware of regarding restricted shares. I knew Harry received restricted stock units, but I had no idea these instruments were completely free to the recipients. Restricted stock is much worse than even hated options in that IDCC receives no money thereon, they have to be expensed over the restricted period, and they increase the outstanding shares when vested. I’ve written the board members directly telling them that I thought executive and director compensation at IDCC was way out of line, and this just makes Harry’s compensation even further out of line. As for director compensation, you may want to see what Execpay.com says about director compensation at IDCC in a letter to a shareholder linked as follows:

“The following will let you compare IDCC's outside directors with those of the top 200 U.S. companies. Obviously, IDCC views their directors as more than TWICE as valuable as those at the BIGGEST 200 U.S. corporations. In 2001, IDCC outside directors got an average of 42,000 options plus the $15,000 retainer plus expenses. The options and retainer, using the Black-Scholes options pricing for 2001 of $8.16 per share from IDCC's 10-K, were worth $357,720. Directors at the TOP 200 U.S. companies got an average total compensation of $152,626 in 2001.
What a sad joke on us as shareholders.
The following is from the website of Pearl Meyers & Partners, the executive compensation clowns hired by IDCC (and many other greedy corporations) to review its executive compensation plans:
Director Pay Surges
Board remuneration at the Top 200 U.S. companies increased 10% to $152,626 as
reported in year 2001 proxy statements.
Director pay consisted of the following components:
Annual retainers, paid by all but a handful of Top 200 companies, averaged $45,947, or 30% of total remuneration. On average, more than one-quarter
of retainers were paid in stock.
Total meeting fees averaged $24,672, or 16% of pay.
Stock options and grants, valued at an average of $81,157, comprised the largest portion of pay, at a record 53%. The overall equity portion of Board pay increases to 62% from 53% when the stock portion of retainers and fees are included.
Board pension plans continued to be offered by only seven companies. As an alternative to pensions, 71 companies provide Board members with shares deferred or restricted until retirement.”
http://www.execpay.com/trends2002.htm


Many people now believe that it is easier for a large corporation to have an independent board if the Chairmanship and the CEO positions are held by different people. IDCC is still a small company with a headcount of only 300, but yet you argue that the Chairmanship is only a part-time position.

When did Harry give-up his dry cleaning business in Chicago and move to KOP? I put “part time “ in quotes because that is IDCC’s official position regarding Harry. If you ask IR and some of the executives, they will say that Harry does not come to KOP very often and that he is not that involved in the decisions at IDCC. However, if you ask some former employees, you will get a completely different answer re Mr. Campagna’s involvement in the affairs at IDCC. Is Mr. Campagna a defacto company executive or is he a truly independent outside director? I personally believe that Harry is very involved in the decisions at IDCC to the extent that he is not truly an “independent” director, and thus should not be on the compensation committee. If Harry is very involved in the affairs at IDCC and deserves all that compensation, then why is he still on the compensation committee and what about other corporate governance issues involving independence? However if Harry is really not that involved in IDCC, then why is he receiving a compensation package this year worth over $1 million? Appears to be a catch-22 situation here. Excerpts from a previous email to Mr. Campagna and the BOD as follows:

One of my major areas of shareholder concern dealt with governance issues at IDCC. Are there proper checks and balances with true accountability in place at IDCC, or is too much power and control concentrated in one person? Mr. Campagna it is the understanding of many that you are very involved in the affairs and decisions at IDCC. Because of your weekly and sometimes daily involvement in the affairs at IDCC, you can not properly be considered as a true independent “outside” director.

If you are not really an independent outside director, then I think you should resign from the compensation committee and be replaced by two more truly independent outside directors. This would help assure that there is not even the slightest appearance of a possible conflict of interest. This suggestion would bring the total to three independent outside directors on this extremely important committee.

Mr. Campagna it appears as though continued employment, promotions, and pay at IDCC could all be connected to ongoing loyalty to you. You have the appearance of being in a position to possibly buy loyalty from both the executives and the other directors of IDCC because of your role on the compensation committee. This current situation at IDCC just does not look or smell right, even if there are no actual improprieties whatsoever. You may be totally above reproach, but there just appears to be too much concentration of power at IDCC without properly functioning checks and balances.

An good article on compensation committees, independence, and executive pay as follows:

http://ragingbull.lycos.com/mboard/boards.cgi?board=CLB00004&read=117893


I understand you think that IDCC's compensation should be compared to other small tech stocks, but to this day you have have been unable to respond to my direct point that a more useful and honest basis for comparison is a basket of other companies with comparable licensing models because the litigation risks in a licensing model forces a company to pay higher compensation to compete effectively for managerial and technical talent in an open market characterized by the presence of a very large number of players who continue to use the options systems very aggressively to boost cash flow.

Good grief, and people say I have long run-on sentences. I have not responded to this particular argument of yours, because I can not make much sense out of it. You make a lot over IPR companies having much more “litigation risks”, which is inherent in any company and more so with product-based companies. Therefore I don’t understand how a pure IPR company without any product liability has more litigation exposure, and thus has to pay more compensation than anyone else. Nor do I understand how executives of IPR companies are tied into and personally liable for company risks to the extent that they deserve more pay because of litigation issues?

Then you claim I used “flawed data” regarding executive compensation at IDCC and thus draw invalid conclusions thereon. First my compensation data came from IDCC’s proxy material mailed in 2002. Four of the five highest paid IDCC executives in 2001 had total compensation packages of over $1 million when the value of granted options were factored in. Almost every reasonable businessman would conclude that is way too much compensation for a company the size of IDCC. The total 2001 compensation of these five highest-paid executives of $5,458,000 represented over 10% of IDCC’s total revenues of $52.5m in 2001. I don’t have to compare IDCC to any other company to know that this was excessive. To IDCC’s credit, they apparently realized that the 2001 compensation to the top executives was unjustified and indefensible, and significantly scaled-back the compensation to these executives in 2002 to more reasonable levels.

Next if we do try to compare IDCC’s executive compensation to other companies it needs to be enough comparable-sized and similar type companies to draw reasonable conclusions thereon. An individual owner did a study of 17 small-cap technology companies. His findings were that IDCC’s salary and bonuses were significantly more than the other companies, even though these comparable market-cap company’s average revenues were twice that of IDCC. Market capitalization and revenues are the fairest way to compare apples to apples IMO. The goal of the top executives should be to maximize market cap by producing solid revenue streams and controlling expenses, thereby driving earnings and share price. Therefore executive pay should be in line with the market cap and revenues of the particular company.

You previously offered-up only three companies for comparison purposes, Qualcomm, Rambus, and ARMHY. It’s impossible to draw any valid conclusions from such a small sample. Qualcomm is so much larger than IDCC that a meaningful straight comparison of dollar salaries and bonuses between the two companies is impossible. Of course the $ amount of compensation to the top executives of Qualcomm should be much higher than IDCC. Rambus and ARMHY would be good similar type companies to include in a comparison study to IDCC, but you still need more companies in addition to these two, as they do not represent a “basket of other companies”. If you could come up with about 10 or so small-cap IPR technology companies with similar revenues to IDCC, like Rambus and ARMHY, then I would give much more credence to your study and conclusions.