MADISON, Wis. -- The $50 billion State of Wisconsin Investment Board has filed a resolution with Shiva Corp., Bedford, Mass., requesting the company not reprice stock options unless the shareholders approve it.
Shiva has responded to the filing by asking the Securities and Exchange Commission to exclude the resolution, and Wisconsin is preparing its response, a spokeswoman for the investment board said.
Karen Wharton, Shiva Corp. spokeswoman, said no one at the company would comment.
The Wisconsin board, which oversees the state pension fund, is focusing solely on options repricing for its corporate governance activities in the 1998 proxy season.
"We started in the fall, before the stock market got so volatile, and asked 22 companies to adopt a policy under which they would not reprice stock options without shareholder approval," the board spokeswoman said.
Wisconsin has negotiated agreements with 18 of the 22 companies, and is still discussing repricing with three others. Shiva, maker of remote access servers, said it would not adopt the policy, which led to the resolution being filed.
The pension fund wants a binding resolution at Shiva, under which shareholders would pass a bylaw requiring no stock options can be repriced without shareholder approval. Approval from the board would not be sufficient.
In its resolution, the Wisconsin board said it generally supports the use of reasonable incentive compensation, but excessive reliance on such plans combined with the practice of repricing when a firm's stock drops, is unfair to shareholders.
"Certain firms like Shiva have continued to expand the use of option plans to the point where existing shareholders face serious potential dilution from options. Based on disclosures in the company's April 1997 proxy statement, options representing approximately 30% of the company's outstanding shares have already been authorized. This type of excessive dilution by itself is an abuse of the incentive compensation process," the resolution states.
The repricing issue is not new for Wisconsin. Last year, it targeted six companies on their repricing policies, and got negotiated agreements with all of them.
"It's an issue that has been a concern for the last few years," the spokeswoman said. Repricing has been particularly prevalent in high-tech and biomedical companies because options are being used more frequently as part of a compensation package to recruit top-level executives.
Wisconsin looked at companies with histories of repricing. "It can be highly dilutive to our stock and as long-term holders we are concerned about it," she said.
The investment board owned around 3%, or 886,108 shares, of Shiva stock as of Sept. 30.
The International Brotherhood of Teamsters, Washington, also has been discussing options repricing with some of the companies owned by its $61 billion pension fund.
It filed resolutions at Weeden & Co. LP, Greenwich, Conn., and Guidant Corp., Indianapolis, which since have been withdrawn after agreements were reached. A third, Sprint Corp., Westwood, Kan., will be on the company's proxy statement, said Bart Naylor, director of corporate affairs for the union.
"Last year, we filed one successfully at RJR Nabisco Inc., and they agreed to change their policy," added Mr. Naylor.
Bill White, Sprint spokesman, said it's the company's policy not to reprice options, and it doesn't plan to change it. "But such a policy could tie our hands. If the market were to fall and options were set at one price, we wouldn't be able to price new ones at a lower price the next year," he noted.
The Teamsters don't always go after violators, Mr. Naylor said. "We have been concerned about volatility in the telephone sector. Option repricing comes under the context of executive compensation. While the rank and file would have to tighten their belts in bad times, senior management will still do OK in the bad times if their stock options are repriced." The Teamsters owned 687,000 Sprint shares as of March 2, he said.
