How much is too much when it comes to an executive's compensation? One of the shareholders in Bermuda-based ESG Re Ltd. has publicly accused the company of overpaying its chairman -- and suggested that shareholders would do better if the company were sold.

Private investment management firm SC Fundamental LLC late last week publicly released a copy of a letter that it mailed to the board of directors of ESG and called on shareholders to take action to protect the value of their investments in the company.

SC Fundamental and its affiliates beneficially own nearly five percent of ESG's outstanding shares. SC Fundamental said its actions were triggered by a review of the company's recently released proxy statement and Form 10-K.

These filings disclosed, for the first time, the compensation being paid to ESG chairman John Head for acting as the company's chief executive officer. In exchange for 16 months of service, Mr. Head is to receive an outright grant of 350,000 shares, options to purchase an additional 350,000 shares at $5.44 per share, and a `golden parachute' payment of $5.8 million upon a change of control at ESG.

Mr. Head began acting as chief executive officer in September 1999, following the resignation of former CEO Wolfgang Wand. Since Mr. Head's appointment, ESG has announced net losses aggregating nearly $50 million.

SC Fundamental's president, Peter Collery, commented: "ESG Re is John Head's creation. He organised the company, hired its management team, sold its shares to the public, manages its investment portfolio and has served as its chairman since inception. For these services he and his affiliates have received cash compensation of nearly $4 million, in addition to warrants, options and expense reimbursement, while the share price has fallen by approximately 80 percent.

"Now, he proposes to serve as interim CEO for 16 months and to receive, by our estimate, a further $3 million worth of stock and options. Should the company be sold during his term as CEO, he stands to realise a further $5.8 million golden parachute payment and ESG may be obligated to pay him as much as $4 million more for his taxes.

Indeed, were the company to be sold, the aggregate cost to ESG of these arrangements would represent an astonishing 35 percent of the company's current market capitalisation.'' Mr. Collery also observed: "Adding insult to injury, it is almost certain that the company's share price would rise considerably if ESG were to be sold or liquidated. The company's refusal to pursue these alternatives has likely depressed the share price even as it has created the `need' to hire John Head as CEO.'' Shareholders blast CEO's golden parachute "It is simply galling that Mr. Head, as CEO, should be overpaid in a currency -- ESG equity -- which is depressed by choices made by Mr. Head as chairman.

"With respect to the golden parachute, it serves absolutely no business purpose and appears to represent nothing more than a $9.8 million `tax' which Mr. Head intends to collect for permitting a sale of ESG.'' SC Fundamental is calling on all ESG shareholders to contact ESG's board of directors to express their dismay at Mr. Head's compensation package and to demand that it be revoked. Additionally, the firm is urging that shareholders vote their proxy statements for the shareholder resolution advocating a sale of the company.

Finally, SC Fundamental is calling for shareholders to withhold authority to vote for all of the company's nominees at this year's annual meeting to be held on May 8.

John Head