Sun Feels Investors' Heat

According to ISS, Sun's stock has posted returns of negative 13.86% for the year compared with average growth of 16.28% of its peer group. Over the last three years, Sun stock returned a negative 9.37% to shareholders compared with growth of 16.56% average among its peers.

Sun's directors were reappointed at the meeting, garnering 76% of shareholder votes.

The proposal to make stock option grants performance-based, which was advanced by the Service Employees International Union, also focused on McNealy's compensation. According to the proposal, McNealy was awarded options to buy 7.5 million shares between 2001 and 2004. "Such grants can result in substantial compensation for only modest gains in share price," the proposal stated. If Sun's stock price appreciates by only a dollar share, it explained, McNealy would reap more than $7.5 million, "even if Sun Microsystems underperformed its competitors during that period."

Instead, the measure proposed that a significant portion of senior executives' future options be tied to performance, by linking the exercise price to an industry index and making vesting contingent upon meeting certain targets.

While the proposal fell short of a majority vote, SEIU Director of Public Markets Steven Weingarten said it still sent a message to Sun. "We think it's a very strong sign to Sun Micro that their rewarding of executives while shareholders take a cold bath is wrong," said Weingarten.

Shortly before the meeting got underway, Sun announced that Chief Financial Officer Stephen McGowan will retire at the end of the company's fiscal year in June. The company said it will begin an immediate search for a replacement.

Shares of Sun were recently off 3 cents to $3.87.