Opinion ID: 195995
Heading Depth: 2
Heading Rank: 3

Heading: Coll's tenure at PB

Text: 15 In October 1988, the PB Board of Directors formed a Compensation Committee to develop compensation packages for PB's senior executives. In April 1989, the Compensation Committee developed an executive compensation proposal which included an Annual Bonus Plan and a LTIP. The proposal, which was shown to Coll prior to being presented to the Board of Directors, included a payout package that gave Coll the opportunity to earn over $1,000,000 in incentive compensation. 16 On April 20, 1989, PB's Board of Directors met and unanimously approved both the Annual Bonus Plan and the LTIP. Payout under the LTIP was contingent upon the achievement of certain long term goals, described in the LTIP as: 17 Milestones as developed by PBDS in accordance with the business plan and subject to approval of the Board. Evaluation of business progress made by the Board prior to the 1992 and 1994 payouts. 18 On July 18, 1989, in response to the Board's request, Coll submitted a written memorandum suggesting payout milestones for the LTIP: 19 The Board of Directors has approved conceptually a LTIP for PBDS senior staff (7 persons). The Board has also approved specific funding for this Plan, 1/3 payable in 1992 and 2/3 payable in 1994. Per your request, we have considered targets appropriate to such a long term plan and our recommendation follows. 20 Since the Annual Bonus Plan has targets approved each year which are tactical and short-term in nature, we believe that the company's interests can be best served by emphasizing strategic and results-oriented goals in the Long Term Plan. 21 For 1992 (year end), criteria should include 22 --entrance into US market 23 --entrance into European market 24 --profitability 25 --positive cash flow 26 Criteria for 1994, 27 --profitability at x level or better--internal rate of return at y% or better 28 I look forward to discussing with you the utilization of these strategic goals. 29 PB claims that in October 1989, its Board of Directors considered and approved the goals proposed by Coll for the LTIP. The relevant minutes from this meeting read: Various compensation and incentive matters were discussed and approved. 30 In April 1990, Coll presented his revised five-year business plan for PB, projecting profitability and positive cash flow by the end of 1992. A year later, it became clear that PB would not meet the profitability and positive cash flow goals embodied in the revised five-year plan. To the contrary, PB suffered tremendous losses in the years 1989, 1990, 1991, and 1992. On April 4, 1991, Coll wrote to the Compensation Committee, proposing to lower the original goals of the LTIP: 31 This memo will address several issues related to the [LTIP] and to the discussion points raised at the Compensation Committee meeting on March 27, 1991.... 32 1. The goals originally established for the 1992 payout of the [LTIP] are conceptually satisfactory. The goal of entrance into the US market is already met and the goal of entrance into the European market is well underway. Perhaps the more critical goals are, however, profitability and positive cash flow. I believe that we should use the concepts of profitability and positive cash flow, but that we should look at these numbers not as absolute dollar amounts within absolute time-frames, but as measures of progress against marketplace, product and business goals. To state that our goal is to become profitable and to have positive cash flow by Q4, 1992 is an excellent tool to motivate managers and their organizations and we have communicated profitability and cash flow goals and responsibilities to our employees.... 33 Certainly, we will not use these tools indiscriminately and without the concurrence of the Board. Further, we agree that we must continuously show positive results in profitability and cash flow. As a result, the management should be measured against its ability to deliver positive profitability on the incremental shipments/revenue that are made in 1992. 34 .... 35 Therefore, my recommendations for the goals are 36 --entrance into US market 37 --entrance into European market 38 --25% operating profit on incremental 1991 to 1992 revenues 39 .... 40 (emphasis added). 41 PB's Board of Directors was scheduled to meet on September 5, 1991. Just prior to this meeting, Coll submitted a lengthy memo in which he again proposed to lower the targets of the LTIP. He informed the Board that the current targets of the LTIP were unattainable and that, therefore, the LTIP was unlikely to create the desired incentives. He urged the Board to lower the targets of the LTIP so that there would be a potential in 1992 for payout under the LTIP. In pertinent part, the memo read as follows: 42 Background: In 1989 the Board approved the basic Long Term Incentive (LTI) plan concepts, including the split of goals to effect 1992 and 1994 payments. At that time, the targets for 1992 were suggested to be: 43 --entrance into US market 44 --entrance into European market 45 --profitability 46 --positive cash flow 47 .... 48 Half of the goals cited above will not be met.... Profitability and positive cash flow are now forecast for 1993, not 1992. 49 The retentive and motivational capabilities of the LTI are therefore compromised for 1992, and the original reason the Compensation Committee had for designing a 1992 payment was to keep people interested. 50 The dilemma therefore is do we keep a plan that in its current construct is unlikely to fulfill its purpose?Do we keep the original plan or do we review other options? 51 .... 52 (emphasis added). 53 At its September 5, 1991, meeting, the Board considered Coll's proposal and rejected it. The minutes of that meeting read as follows: 54 A management proposal to replace the Company's Long-Term Incentive Plan was considered. The existing Plan appears unlikely to produce incentive compensation payments under the Company's present business forecasts. The management proposed replacing the plan with one that would provide realistic incentives to the Company's management. 55 . Directors pointed out the inadvisability of lowering the objectives of an incentive plan to match lowered performance expectations.... 56 After further discussion, the Board did not accept the proposal to modify the current plan. The Board approved in principle the adoption of a successor long-term incentive compensation plan for later years, with the prospect of a one-third payout in 1993 and a two-thirds payout in 1995.