A T & T

A Shareholder Resolution on Executive Pay and Downsizing

WHEREAS, despite record profitability in the 1990s, U.S. corporations, including AT&T, have also laid off record number of workers, arguing that cost-cutting is one key to long-term competitiveness and increased profitability;

WHEREAS, only 44% of firms that downsized employees saw a rise in operating profits, according to a 1992 study by the American Management Association. The same study found that only 31% of corporate downsizers experienced productivity gains following the layoffs, while 77% experienced deterioration in employee morale. A similar study of 1,000 large companies conducted by the Wyatt Company found that less than one-third of the companies surveyed hit profit targets projected at the time of the restructuring;

WHEREAS, a 1992 study by the Haas School of Business at the University of California at Berkeley found that firms with the widest pay gaps experienced lower quality. A study published in the Journal of Organizational Behavior found that high levels of executive compensation generated cynicism among white-collar employees;

WHEREAS, in 1998, in conjunction with a large-scale reduction in workforce, AT&T Chairman Michael Armstrong announced a pay freeze for nearly 1,000 top officers and managers. This move demonstrated a sense of shared sacrifice within the organization and received widespread positive coverage in the media;

WHEREAS, in fall, 1999, AT&T announced another impending round of restructuring involving the layoff of an unspecified number of workers. The company also announced that this latest round of layoffs will not include generous severance packages for which AT&T has been known;

WHEREAS, AT&T has been a leader in pursuing policies of seeking improved financial health through layoffs. Despite years of practicing this policy, our company continues to experience stagnant revenue growth relative to its major competitors;

WHEREAS, we believe that asking employees to sacrifice while at the same time rewarding executives sends a mixed message to employees, suppliers and shareholders. We believe that business success over the long-term is enhanced when business is viewed as a shared enterprise in which both the rewards and sacrifices are equitably shared among all employees;

WHEREAS, corporate leaders should have a long-term view when making management decisions. If decisions to cut costs are in the long-term best interest of the company, executives should be willing to defer their rewards until positive results are demonstrated. Rewarding cost-cutting executives for potentially good future performance is in conflict with standards of good corporate governance.

RESOLVED, shareholders request that the Board build upon its previous commitment to a spirit of shared sacrifices and rewards by adopting an executive compensation policy that freezes the pay of corporate officers during periods of significant downsizing (layoffs involving the lesser of 5% of the company's workforce or 2,000 workers.) This pay freeze shall continue for a period of one year following the layoffs.

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