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THE BEAR STEARNS COMPANIES INC.
(Name of Registrant as Specified In Its Charter)
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March 25, 2004
Ms. Sarah Johnson Nancy Florek
Artisan Partners Putnam Investment Management
Mr. Chris Hansen Nat Akyeampong
Deutsche Asset Management Alliance Capital Management
Margaret Reed Gilbert Hahn
Westwood Capital Marvin & Palmer Associates, Inc.
Andrew Wellington Chris Martin
Neuberger Berman Investco Capital Management
Dear Shareholder,
Thank you for taking the time to review this material.
It is our understanding that many institutional holders of common stock of The
Bear Stearns Companies Inc. (Bear Stearns or the Company) have engaged
Institutional shareholder Services (ISS) as an advisor on their proxy voting.
ISS has indicated in their report on the Bear Stearns Proxy that they are
recommending a "NO" vote on proposals 2, 3 and 4. These proposals are related to
the equity-based plans that Bear Stearns uses to compensate its employees. In
reviewing the report from ISS, we have noted that the reason that they are
recommending a "NO" vote is that they believe that the cost of the Bear Stearns
plans is too high for the shareholders. They base this on a model which they
have built which measures Shareholder Value Transfer. This model measures the
amount of value that the company transfers to its employees from having
equity-based plans. In reviewing the model related to Bear Stearns we note that
ISS believes that the ultimate value transferred by the Bear Stearns
equity-based plans is between 30% and 41% which exceeds their suggested 12.66%
cap based on our industry and company performance. We further noted that ISS
arrives at this transfer amount by valuing the cost of both those restricted
shares and stock options we may issue in the future and those restricted shares
and stock options that we have already granted in the past.
The issue that we have with the ISS model is that they have not recognized how
Bear Stearns compensates its employees. When Bear Stearns instituted its first
equity-based plan in 1989 we did not offer it to employees as an additional
benefit to their existing compensation; instead, we reduced the amount of cash
compensation for the equity that was offered. Over the years, as we added other
plans, which included the Capital Accumulation Plan, the Stock Award Plan and
the Restricted Stock Unit Plan, we continued to reflect the awards under these
plans as a reduction of the employees' cash compensation.
The management of the Company and the Compensation Committee of the Board of
Directors felt it was important to have a significant portion of employees
compensation delivered to them in the form of equity. The more senior the
employee the more significant the amount delivered in equity. This is a common
practice in the financial services industry, as you can see from the proxies and
annual reports of our closest competitors.
In addition, we felt that it was important that these payments were made at the
lowest cost possible to the Company. Therefore we continued to reduce the amount
of cash compensation paid to our employees for the fair value of the restricted
shares and stock options on the grant date. We also decided to acquire the
shares underlying these awards in the open market. Every year, Bear Stearns goes
into the open market and purchases enough stock to hedge the dilutive effect of
all of its restricted shares and stock options. During the most recent fiscal
year, Bear Stearns purchased almost 11 million shares for such purposes.
Therefore, we have effectively made the employees pay for the restricted shares
and stock options.
Based on the current shares and stock options held in the various plans, we have
reduced compensation by approximately $2.1 billion for the restricted shares and
stock options currently outstanding under each of these plans. This amount would
basically offset the amount reflected in the Shareholder Value Transfer model
prepared by ISS and would reduce the cost of the plans to an amount
significantly lower than the 12.66% specific cap for our industry. Absent the
shares issued in prior years ISS would have recommended a vote "FOR" each of
these proposals.
We are confused that ISS would recommend a "NO" vote for these proposals based
on the number of restricted shares and stock options granted in previous years.
We would also like to point out that the plans that we are amending have been
outstanding for a significant period of time (Capital Accumulation Plan - 1989,
the Stock Award Plan - 1999 and the Restricted Stock Unit Plan - 2000) and with
the exception of the Restricted Stock Unit Plan, each plan has previously been
approved by both the shareholders and ISS. ISS has reviewed the plans and the
amounts we have granted under these plans several times in the past few years
and they have always ultimately recommended a vote "FOR" proxy proposals
relating to the plans.
Based on this information we request that you incorporate this additional
information as you make your voting decisions. If you have any questions about
this or the Bear Stearns Proxy or if you need more information please do not
hesitate to call me at 212-272-9251.
Thank you for your time and attention to this matter.
Sincerely,
/s/ Elizabeth Ventura
--------------------------------
Elizabeth Ventura
Senior Managing Director
Investor Relations and Corporate
Communications
The Bear Stearns Companies Inc.
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