PeopleSoft Links Pay and Performance

Responding to shareholder pressure, PeopleSoft(PSFT Quote - Cramer on PSFT - Stock Picks) has agreed to link 50% of its top executives' stock pay next year to performance targets and will replace options awards for executives with restricted stock.

According to a filing with the Securities and Exchange Commission on Thursday, the compensation committee of PeopleSoft's board of directors is developing a policy that will tie vesting of 50% of stock awards for the CEO and the four other highest-paid executives to performance metrics.

PeopleSoft, which has faced mounting criticism for its compensation practices, said the policy shift came after consultation with a stockholder, but it did not name that stockholder.

Previously, the California Public Employees' Retirement System (CalPers), the nation's largest pension fund, with $154 billion in assets, submitted a performance-based equity compensation program to be voted on by shareholders at the company's annual meeting next month. A CalPers spokesman told Dow Jones that the fund met with PeopleSoft's compensation committee, which was willing to accept some of CalPers' proposals.

Since then, CalPers has dropped its proposal, though it went a little further than the company by calling for 75% of equity compensation to be based on performance.

PeopleSoft's current pay-performance practices received a D grade from San Francisco-based Glass Lewis. The proxy advisory firm found that PeopleSoft pays its executives more than 96% of the companies in three peer groups of 100 companies each, while PeopleSoft's stock performance has been just a little above average vs. those peers.

To measure company performance, Glass Lewis looks at such metrics as earnings-per-share growth and stock performance.

Following a trend set by Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks), PeopleSoft also said in the filing Thursday that equity awards to executives in 2004 will be solely in the form of restricted stock "to further align the long-term interests for our stockholders and executives." The company also noted restricted stock is less dilutive than pure options awards.

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