JDS Uniphase Linking Stock Options to Performance

October 17, 2003 (PLANSPONSOR.com) - JDS Uniphase Corp. has proposed a new executive compensation program to link the use of stock options more closely to the company's financial performance.

The new program will link the awarding of stock options to 19 financial criteria, such as share price, earnings, operating and gross profit margins, return on equity, sales and market share of the fiber-optic components maker.   However, before the plan can be implemented, it must first be approved at the company’s November 6 annual shareholder meeting, according to a Reuters report.

Additionally, the JDS program, which was designed with the help of the California Public Employees’ Retirement System (CalPERS), will require the company to seek shareholder approval to award options above a set level or reprice options, as well as cap the number that can be awarded to the top five executives at 5% of the annual total.   This comes along with a ceiling placed on the number of stock options that can be awarded to employees of the San Jose, California-based JDS over a three-year period .

However, the caps do not apply to options awarded upon hiring or promotion, the company said. In September, JDS Chairman and Chief Executive Kevin Kennedy received two million options when he was hired.

JDS started work on the new program in April and consulted in May with officials from the nation’s largest public pension fund.   This came after the $145-billion pension fund named the company to its annual list of corporate America’s poorest performers (See  CalPERS Releases Corporate Governance Focus For 2003 ).

Officials at CalPERS touted the JDS compensation program as giving shareholders a voice in how options are used.   “That is the biggest downfall of the equity culture in the US is that it lacks a significant tie to real performance,” Ted White, director of corporate governance at CalPERS told Reuters.

“It’s a dramatic improvement in the way they compensate and we think that has a lot to do with driving performance and behavior,” he added.