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SCHEDULE 14A
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Salomon Inc
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(Name of Registrant as Specified in Its Charter)
Salomon Inc
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(Name of Person(s) Filing Proxy Statement)
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[LETTERHEAD] SALOMON INC.
April 18, 1996
Dear Shareholder:
The Board of Directors and Management of Salomon Inc urge you to vote
in favor of amendments to the Company's Equity Partnership Plan for Key
Employees, for these good reasons:
1. A three-year vesting period will reduce employee turnover by
making it much more expensive for competitors to hire our Key
Employees.
2. We expect this to be done at no additional
cost to the Company or its shareholders.
You may have recently received a copy of Institutional Shareholder
Services' ("ISS") Proxy Analysis for Salomon Inc's 1996 Annual Meeting. The
analysis, which is carried out on a purely theoretical basis, recommends a vote
against approval of the amendments of the Equity Partnership Plan for Key
Employees which had been adopted by Salomon's Board of Directors on February 7,
1996.
ISS's analysis of the proposed amendments is flawed in a number of
important respects. It wholly fails to analyze the comparative advantages of the
amended plan versus the existing plan. It simply assumes that, since the
discount has been increased from 15% to 20%, the plan must cost shareholders
more. Under the existing plan, all shares allocated to employees vest
immediately and dividends are reinvested at a 15% discount. Under the proposed
amendments, shares vest on a pro-rata basis over a three-year
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SALOMON INC.
period and the dividend reinvestment discount has been eliminated. In addition,
shares attributable to the discount vest only at the end of the three-year
period. Thus, to take down all the shares awarded and realize the value of any
of the discount, an employee must remain with the Company for the full
three-year period.
ISS's analysis assumes that all employees who are awarded EPP shares
will stay for the entire three-year period. That is contrary to historical
experience. Indeed, if we assumed historical experience would be replicated in
the future, the cost of the plan, as amended, to the Company would be less than
in previous years.
As you know, retaining key employees was a significant issue for
Salomon Brothers last year. The amended plan is a key part of the measures that
we have taken to address this problem, measures which to date are working. THE
BOARD OF DIRECTORS APPROVED THIS PLAN BECAUSE IT FEELS STRONGLY THAT RETAINING
KEY PRODUCTIVE EMPLOYEES IS IMPORTANT TO THE COMPANY'S BOTTOM LINE. Stability is
good for morale, lowers recruiting expenses and enables us to build the strong
core teams that are necessary for winning business in the global marketplace.
If the amended plan is successful in lowering the historical turnover
rate, the Board feels that value will be created for the shareholder. Various
scenario analyses have been conducted, resulting in the conclusion that THE ONLY
WAY THAT THE COST OF THE AMENDED PLAN COULD POTENTIALLY EXCEED THAT OF THE
EXISTING PLAN IS IF TURNOVER IS ALMOST TOTALLY ELIMINATED. If turnover is almost
totally eliminated and the aforementioned benefits resulted, the Board would
feel that they had truly benefited the shareholder.
The Board of Directors and I believe that the amendments to the plan
will make it a more effective tool for motivating and
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SALOMON INC.
retaining employees. We also believe that the amendments will not impose
additional costs. Since the ISS analysis does not address these points, I urge
you to disregard its recommendation and vote for the proposed amendments.
Sincerely,
/s/ Robert E. Denham
--------------------
Robert E. Denham
Chairman
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- - While we fully expect the plan amendments to be approved, we want to be
sure that you are not misinformed.
- - Comparison of the amended plan with the existing plan demonstrates that
the amendments should result in greater employee retention at no
additional cost to the Company.
- - The amendments provide for pro-rata three-year vesting as opposed to
immediate vesting under the existing plan.
- - The amendments eliminate the dividend reinvestment discount of 15%
which currently applies under the plan.
- - To realize the value of the 20% discount provided by the amendments, an
employee must remain with the Company for the full three-year vesting
period.
- - ISS's analysis unrealistically assumes that all employees who are
awarded EPP shares will stay for the entire three-year period. A more
realistic assumption is that attrition of plan participants, albeit at
a reduced rate, will continue. In these circumstances, costs of the
amended plan should be less than the costs of the existing plan.
- - As you know, retaining key employees was a significant issue for
Salomon Brothers last year. The amended plan is a key part of the
measures that we have taken to address this problem, measures which to
date are working. The Board of Directors approved this plan because it
feels strongly that retaining key productive employees is important to
the Company's bottom line. Stability is good for morale, lowers
recruiting expenses and enables us to build the strong core teams that
are necessary for winning business in the global marketplace.
- - If the amended plan is successful in lowering the historical turnover
rate, the Board feels that value will be created for the shareholder.
Various scenario analyses have been conducted, resulting in the
conclusion that the ONLY way that the cost of the amended plan could
potentially exceed that of the existing plan is if turnover is almost
totally eliminated. If turnover is almost totally eliminated and the
aforementioned benefits resulted, the Board would feel that they had
truly benefited the shareholder.
