Valeant Pharmaceuticals International (VRX): How I Voted – Proxy Score 33 Revised 5/24/2012

Valeant (VRX) ($VRX) is one of the stocks in my portfolio. Their annual meeting is coming up on 5/30/2012. Voting ends 5/29 on Moxy Vote’s proxy voting platform, which had 3 recommendations “from good causes” when I checked and voted on 5/23 but 2 were consolidations of the one. ProxyDemocracy.org had 0 funds voting.  I voted with management 33% of the time.

I make it a practice to vote against pay packages where NEOs were paid above median in the previous year. Yes, I know, this is pretty crude analysis. I’ll make exceptions where something obviously warrants different treatment. However, I’m concerned that NEOs are taking a greater and greater portion of wealth generated by companies.

According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay, Oxford Review of Economic Policy, Vol. 21, Issue 2, pp. 283-303, 2005), the aggregate compensation paid by public companies to their top-five executives during the period 1993-2003 totaled about $350 billion, and the ratio of this aggregate top-five compensation to the aggregate earnings of these firms increased from 5 percent in 1993-1995 to about 10 percent in 2001-2003.

At the same time, few firms want to admit to having average executives, so they seek to compensate their executives at above-average levels. They survey executive compensation at corporations and then set compensation packages that are above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average and their collective pay spiraling out of control.

VRX’s SummaryCompensation Table shows that J. Michael Pearson, CEO, was the highest paid named executive officer (NEO) at about $36.7M in 2011. I’m using Yahoo! Finance to determine market cap and  Wikipedia’s rule of thumb regarding classification. According to those sources, at about $14.6B DWA is a large-cap company. According to the United States Proxy Exchange (USPX) guidelines (pages 9&10), using data from Equilar, the median pay at large-cap corporations was $10.8 million in 2010, so VRX’s pay is well above that median. I voted against the pay plan and “Talent and Compensation Committee” members: Power, Farmer, Ingram, Morfit, and Paul.

I received new information on 5/24/2012 and revised my vote. See annotations in grid below.

Mark your calendars; shareowners for next year are due March 16, 2012.

And here’s how I actually voted, using Moxy Vote’s proxy voting platform.

	RONALD H. FARMER	Withhold  This director is a CEO and sits on the compensation committee. Directors who are CEOs themselves may have conflicts of interest in setting the pay of other chief executives, and thus are not suitable to be members of compensation committees.
	ROBERT A. INGRAM	Withhold  He sits on committees and is not independent.  Only independent directors should sit on committees.
	THEO MELAS-KYRIAZI	Yes
	G. MASON MORFIT	Withhold  He sits on committees and is not independent.  Only independent directors should sit on committees.
	LAURENCE E. PAUL	Withhold This director is a CEO and sits on the compensation committee. Directors who are CEOs themselves may have conflicts of interest in setting the pay of other chief executives, and thus are not suitable to be members of compensation committees.
	J. MICHAEL PEARSON	Withhold   He is the chair and the CEO.  These positions should be separated so that the board may oversee management without a conflict of interest.
	ROBERT N. POWER	Withhold
	NORMA A. PROVENCIO	Yes
	LLOYD M. SEGAL	Yes
	KATHARINE STEVENSON	Withhold The proxy states that she was “responsible for all treasury activity at Nortel, including global treasury operations, corporate and structured finance, credit, and risk management.”  Given the events that unfolded at Nortel under her watch, she is not a not a suitable candidate for the audit committee of this company.

Board Proposals		Your Vote

	THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THE COMPENSATION DISCUSSION AND ANALYSIS SECTION, EXECUTIVE COMPENSATION TABLES AND ACCOMPANYING NARRATIVE DISCUSSIONS CONTAINED IN THE MANAGEMENT PROXY CIRCULAR AND PROXY STATEMENT.	No
	TO APPOINT PRICEWATERHOUSECOOPERS LLP (UNITED STATES) AS THE AUDITORS FOR THE COMPANY TO HOLD OFFICE UNTIL THE CLOSE OF THE 2013 ANNUAL MEETING OF SHAREHOLDERS AND TO AUTHORIZE THE COMPANY S BOARD OF DIRECTORS TO FIX THE AUDITORS REMUNERATION.	Yes