SolarCity $SCTY Voting Recommendations

SCTYSolarCity (SCTY), is one of the stocks in my portfolio. Their annual meeting is coming up on June 4, 2014. had collected the votes of no funds when I checked and voted on 5/26/2014.  I voted with management 75% of the time but won’t next year if corporate governance reforms are not made.  View Proxy Statement. Read Warnings below. What follows are my proxy voting recommendations for SCTY.


SCTY’s Summary Compensation Table shows Chief Operations Officer Tanguy V. Serra was the highest paid named executive officer (NEO) at about $11M in 2013. I’m using Yahoo! Finance to determine market cap ($4.8B) and Wikipedia’s rule of thumb regarding classification. SCTY is a mid-cap company.  According to Equilar (page 6), the median CEO compensation at mid-cap corporations was $4.7 million in 2012, so SCTY is way above median. SCTY shares underperformed the NASDAQ over the past year but outperformed considerably over the two year period.


The GMIAnalyst report I reviewed raised a number of red flags regarding pay:

  • The SolarCity Corporation board does not include a fully independent compensation committee, raising concerns about the board’s effectiveness in overseeing the company’s CEO and other managers, a key board function, as well as its ability to design sufficiently rigorous incentives for executives.
  • The board has not established a formal clawback policy regarding its executive incentive pay. Such policies allow boards to recoup incentive payouts that may have been the undeserved result of erroneous or fraudulent financial reporting.

  • 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’s failure to establish and disclose specific standards regarding minimum equity retention standards for its CEO and directors may weaken the ability of equity awards to align executives’ interests with long-term value creation.

For the above reasons, I would have voted against the pay package and would have voted against  members of the compensation committee: John H. N. Fisher, Nancy E. Pfund, Jeffrey B. Straubel. However, since SCTY has a classified board, I could only vote against one member of that committee, Nancy E. Pfund.  

Other Concerns

In reviewing other areas of the GMIAnalyst report several 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. In addition, the company has charter and bylaw provisions that would make it difficult or impossible for shareholders to achieve control by enlarging the board or removing directors and filling the resulting vacancies. This combination is widely associated with inferior board performance and 24.7% of U.S. companies are flagged for this.
  • The board includes at least one executive director in addition to the CEO, characteristic of 32.7% of companies in this market. Multiple inside directors may provide a too-strong management voice within the boardroom.
  • The company has not adopted a full majority director election standard, greatly limiting the ability of company shareholders to hold members of the board accountable in uncontested elections. Majority voting has been widely adopted in the United States, especially among larger-cap companies, but more than 61.9% of the Russell 3000 remains under a plurality or plurality plus voting standard.
  • 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.
  • SolarCity Corporation does not regularly publish a formal sustainability report. 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.

Frankly, corporate governance at SCTY is a disappointment.  I purchased shares in our company because of the promise not only of profits but also of helping to finance a company that could help make a dent in climate change. I expect socially responsible companies to do well by doing good, including in their governance. Yet, SCTY has a classified board, plurality election standards and more; see below. I won’t be giving our current board the benefit of the doubt next year. 

Other Proxy Issues

I was going to vote against the auditor since about 40% of fees paid to Ernst & Young LLP were not for auditing. However, they appear to be audit-related… so, not knowing exactly what that is without more reading, I went ahead and voted to confirm. 

CorpGov Recommendations Below – Votes Against Board Position in Bold

Mark your Calendar

Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to our corporate secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2015 annual meeting of stockholders, our corporate secretary must receive the written proposal at our principal executive offices not later than December 26, 2014. In addition, stockholder proposals must comply with the requirements of Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to:

SolarCity Corporation

Attention: Corporate Secretary

3055 Clearview Way

San Mateo, California 94402

Issues for Future Proposals

 Looking at 
  • Classified board with staggered terms.
  • Plurality vote standard to elect directors with no resignation policy.
  • Board is authorized to increase or decrease the size of the board without shareholder approval.
  • Directors may only be removed for cause.
  • No action can be taken without a meeting by written consent.
  • Shareholders cannot call special meetings.
  • Supermajority vote requirement (66.67%) to amend certain charter provisions.
From Yahoo! FinanceSolarCity Corporation’s ISS Governance QuickScore as of May 1, 2014 is 7. The pillar scores are Audit: 10; Board: 9; Shareholder Rights: 8; Compensation: 3. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures.


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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