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Despite losses nearing $1bn over the past year, Sun Microsystems' top executives are cashing in.

CEO and president Jonathan Schwartz and chairman Scott McNealy have seen their rewards increase several hundred per cent over the past 12 months.

Now two of Sun's major institutional investors have taken aim at what they call "excessive" compensation for a period in which the company has been in the doldrums. Two public pension funds - the AFL-CIO union's AFSCME and the Connecticut Retirement fund - have tabled a motion calling for an annual referendum on the work of Sun's generous executive compensation committee.

The astronomical bonuses and the shareholder motion were disclosed in a SEC filing yesterday.

CEO Jonathan Schwartz saw his remuneration rise a whopping 660 per cent, up from $3m in 2005 to $22.8m in 2006. Schwartz started the year as president and COO, swapping the latter title for CEO in April. Chairman Scott McNealy had to settle for a more modest 292 per cent increase.

Schwartz took home almost $900,000 and $568,000 in salary and cash bonuses last year, with McNealy receiving $127,489 and $933,450 in bonuses. But the bulk of the bosses' bounty came in the form of restricted stock - Schwartz was granted $12.97m and McNealy $6.7m.

Restricted stock options basically stuff money in to the executives' wallets, come rain or shine.

"It pays off even if the stock price of the company drops by 90 per cent," Berkeley law professor Jesse Fried said last month. "There's a tremendous amount of pay-without-performance built in."

But aren't the Sun kings' bonuses supposed to be tied to the health of the company? The company seems to want you to think so.

"Sun's philosophy, in setting compensation policies for executive officers, is to align pay with performance..." the company stresses in yesterday's SEC filing.

It's very complicated, but it all depends on how you measure health.

Over the year Sun has posted losses in each of its four most recent quarters, totaling $863m.

(The company recorded a loss of $310m for the quarter ending June, and losses of $217m, $223m, and $123m in preceding quarters).

That compares to a slender but very real $200m non-GAAP profit for the preceding year, a figure that excludes $260m in restructuring charges. And it's even worse than the $791m loss recorded in 2004.

The group who devised the bonuses, the Leadership Development and Compensation Committee (LDCC), says it's independent. But it consists of three of Schwartz and McNealy's fellow board members including John Doerr. The LDCC also bases its calculations largely on performance targets set by...Schwartz and McNealy.

The LDCC also devised a bonus scheme that takes count of factors other than profits. The scheme loads 40 per cent of the final calculation onto the final quarter of the financial year, where the yearly revenue growth and yearly free cash flow become factors. Sun's revenues are on a rebound, but not its profits.

As you'd expect, the investors' proposal for a referendum, Proposal 4, has got the brush off from the board, with an official recommendation to reject the bid.

We still remember when then CEO McNealy boasted of getting his hair cut at Supercuts, a symbol of Sun's new austerity. That was in 2002, the year Sun's stock crashed by a third...and the company lost a mere $255m.

Reality-based bonuses? Not at Sun. ®

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