iRobot Corporation $IRBT, is one of the stocks in my portfolio. Their annual meeting is coming up on 5/20/2014. ProxyDemocracy.org had collected the votes of one fund when I checked and voted on 5/13/2014. I voted with management % of the time. View Proxy Statement. Read Warnings below
Compensation
IRBT’s Summary Compensation Table shows CEO/Chair Colin M. Angle was the highest paid named executive officer (NEO) at about $3.5M in 2013. I’m using Yahoo! Finance to determine market cap ($952M) and Wikipedia’s rule of thumb regarding classification. IRBT is a small-cap company. According to Equilar (page 6), the median CEO compensation at small-cap corporations was $2.5 million in 2012, so IRBT was well above median. IRBT shares out-performed the NASDQ over two and five year periods but has under-performed during the last year.
The following additional pay concerns were raised by GMIAnalyst:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination, characteristic of 90.2% of companies in the home market. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
- The company has not disclosed specific, quantifiable performance target objectives for the CEO, in contrast to 73.9% of companies in its home market that have provided such metrics. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
- The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group, which is the case for 90.7% of companies in the Russell 3000 index. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
Because I believe our CEO was overpaid and because of the additional concerns noted above, I voted against the pay plan and would have voted against the compensation committee members below if I had been given such an opportunity. Unfortunately, IRBT maintains a classified board, which makes it difficult to hold directors accountable.
- George C. McNamee (chairman of compensation committee)
- Deborah Ellinger
- Ronald Chwang
GMIAnalyst
The GMIAnalyst report I reviewed gave IRBT an overall grade of ‘C.’ From their report a few abbreviated highlights stood out:
- The board is elected in separate classes with terms that expire in different years rather having all directors subject to annual reelection. True of 24.7% of U.S. companies.
- The company has failed to split the roles of CEO and chairman, which may compromise even further the board’s independence from current management interests. Split CEO and chairman roles are characteristic of 57.8% of companies in the Russell 3000.
- The company has been flagged for its failure to utilize an environmental management system or to seek ISO 14001 certification for some or all of its operations.
- It does not currently report on its sustainability policies and practices via the Global Reporting Initiative, a commonly used and highly effective standard for such reporting, nor has it become a voluntary signatory of the UN Global Compact, yet another commonly employed global standard for achieving and maintaining more effective sustainability practices. In the area of workplace safety this company has not yet implemented OHSAS 18001 as its occupational health and safety management system, nor does it actively disclose its workplace safety record in its annual report or other reporting vehicle.
Board of Directors
GMI flagged the board for potential concerns regarding the integrity and effectiveness of certain directors. These are all individuals who have been flagged as having been involved in one or more negative governance events in the course of their service at previous companies, as explained in their individual biographies.
Other Proxy Issues
Of course I voted in favor of my own (James McRitchie) proposal requesting our board take the steps necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. It is high time IRBT came into conformity with the policy of the Council of Institutional Investors, whose members hold more than $3T in assets.
3.6 Voting Requirements: A majority vote of common shares outstanding should be sufficient to amend company bylaws or take other action that requires or receives a shareowner vote. Supermajority votes should not be required. A majority vote of common shares outstanding should be required to approve:
- Major corporate decisions concerning the sale or pledge of corporate assets that would have a material effect on shareowner value. Such a transaction will automatically be deemed to have a material effect if the value of the assets exceeds 10 percent of the assets of the company and its subsidiaries on a consolidated basis;
- The corporation’s acquisition of five percent or more of its common shares at above-market prices other than by tender offer to all shareowners;
- Poison pills;
- Abridging or limiting the rights of common shares to: (1) vote on the election or removal of directors or the timing or length of their term of office or (2) nominate directors or propose other action to be voted on by shareowners or (3) call special meetings of shareowners or take action by written consent or change the procedure for fixing the record date for such action; and
- Issuing debt to a degree that would excessively leverage the company and imperil its long-term viability.
I’m delighted the IRBT board is not opposing this important proposal. However, they have not taken a position, so if you fail to mark your ballot “for” it will default to “abstain.”
| # | PROPOSAL TEXT | CorpGov | CBIS |
|---|---|---|---|
| 1.1 | Elect Director Gail Deegan | For | For |
| 1.2 | Elect Director Andrea Geisser | For | For |
| 2 | Ratify Auditors | For | Against |
| 3 | Ratify NEO Compensation | For | For |
| 4 | Reduce Supermajority Vote Requirement | For | For |
Mark your Calendar
To be considered for inclusion in next year’s proxy materials, stockholder proposals must be in writing and be received by the Secretary of Waste Connections, at the address set forth on the first page of this proxy statement, no later than the close of business (Central Standard Time) on December 4, 2014.
Issues for Future Proposals
Looking at SharkRepellent.net: - Classified board with staggered terms.
- Directors may only be removed for cause.
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
Warnings
Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime).I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.
Few firms admit to having average executives. They generally set compensation at 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, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs
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