Investor reports blast Qwest board, exec pay
The analyses say the company's performance is subpar and the directors lack independence.
By Ross Wehner, Denver Post Staff Writer
Wednesday, May 18, 2005

Two shareholder research firms are saying Qwest's board lacks independence and pays too much to chief executive Richard Notebaert and other Qwest executives, given Qwest's lackluster financial performance.

The reports from Glass Lewis & Co. and Proxy Governance were issued before Qwest's annual shareholder meeting this coming Tuesday in Denver.

Qwest has battled the issues in past shareholder meetings and is advising shareholders to vote against three shareholder proposals that address executive compensation and board independence.

A third shareholder research firm, Institutional Shareholder Services, is less openly critical of Qwest but still recommends a vote for the three proposals.

"In terms of pay, you will find Dick Notebaert at the lower end of the scale when compared to his direct peers," said Qwest spokesman Steve Hammack.  "His overall compensation is commensurate with his experience in our segment, and the results have borne that out."

Glass Lewis gave Qwest an "F" for its pay-for-performance model, which compares Qwest with similar companies in the same industry.

"Overall the company paid more than its peers, but performed worse than its peers," the report said.

Notebaert's 2004 pay package is estimated at $11 million to $12.5 million, depending on what value the two research firms placed on 1.9 million stock options he received in 2004.

"Given the company's current low stock price, we believe it is particularly egregious to give out nearly 2 million options without building in a performance component," said Proxy Governance in its report.

Notebaert cannot profit from those options unless Qwest's shares rise above a "strike price" of $4.70.  Qwest stock closed Tuesday at $3.73 a share.

The executive pay packages include salary, bonus, stock options and other compensation.

Some companies Qwest is compared with are Verizon, BellSouth, SBC, Nextel, Sprint, Alltel and CenturyTel. Performance is based on measures such as stock performance, cash flow from operations and return on equity.

"It just isn't right," said Nelson Phelps, a Qwest shareholder and executive director of the Association of US West Retirees, referring to Notebaert's pay package.

"We're concerned not only about compensation but also executive perks."

Phelps plans to vote for a shareholder proposal Tuesday that will partly revamp Qwest's compensation practices.

Glass Lewis and Proxy Governance also criticized Qwest's board for lacking independence and for having numerous commercial connections with Qwest founder and board member Philip Anschutz, Right-click here to download pictures. To help protect your privacy, Outlook prevented automatic download of this picture from the Internet.who owns 16.5 percent of the company.

"We question the need for the company to engage in such relationships with its directors and on such a pervasive level," Glass Lewis wrote.

Phelps said the one positive is that Anschutz Investment Co. president Craig Slater is stepping down from Qwest's board this year.

Qwest has said that its board complies with rules for director independence laid down by the New York Stock Exchange.

The dealings cited by the reports include:

Qwest director Linda Alvarado, president and CEO of Alvarado Construction, received $1.3 million for services rendered in 2000.  Alvarado joined the Qwest board in 2000.

The U.S. Chamber of Commerce received a $100,000 contribution from Qwest in fiscal 2004.  Qwest director Thomas Donohue is the chamber's CEO.

Qwest paid $2.5 million in office rent and other expenses to companies controlled by Anschutz through Oct. 31, 2004.

Qwest entered into an aircraft time-sharing agreement with a subsidiary of the Anschutz Co. in January this year.

"The number of relationships between the company and Anschutz or entities controlled by him is unusual for a large public company, even one with a significant individual stockholder," said Proxy Governance.

Phelps said shareholders will be asking plenty of hard questions at Tuesday's meeting.

"If we keep the heat on, those contracts will disappear and you won't see as much influence from Anschutz," he said.

Staff writer Ross Wehner can be reached at 303-820-1503 or