Biogen Idec, $BIIB: Proxy Vote

Biogen Idec, $BIIB, is one of the stocks in my portfolio. Their annual meeting is June 12, 2014. ProxyDemocracy.org had collected the votes of four funds when I checked and voted on 6/10/2014. ProxyDemocracy.org now has collected the votes of five funds.  I voted with management 46% of the time.  View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the BIIB proxy in order to enhance corporate governance and long-term value.   Compensation

BIIB’s Summary Compensation Table shows CEO George A. Scangos was the highest paid named executive officer (NEO) at about $15M in 2013. I’m using Yahoo! Finance to determine market cap ($75.5B) and Wikipedia’s rule of thumb regarding classification. BIIB is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $9.7 million in 2012, so BIIB is over that. BIIB shares outperformed the NASDAQ substantially over the one, two and five periods.

The GMIAnalyst report I reviewed gave BIIB an overall grade of ‘C.’ According to the report:

• 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 CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team. 

Because pay was above median and because of the problems noted by GMIAnalyst, I voted against the pay package and members of the compensation committee: Robert W. Pangia (Chair), Alexander J. Denner, Eric K. Rowinsky, and Lynn Schenk.

Board Issues 

Dr. Stephen A. Sherwin M.D. serves on five boards, while Stelios B. Papadopoulos Ph.D. sits on four boards. Since I think that is too many to devote necessary attention to each, I voted against both.

Accounting

The GMIAnalyst report flagged asset liability valuation as extreme compared to peers. Less than 25 percent of total audit fees paid to the auditor were attributed to non-audit work. I voted to ratify the auditor.

CorpGov Recommendations Below – Votes Against Board Position in Bold

Stockholder proposals submitted pursuant to Securities Exchange Act Rule 14a-8 and intended to be presented at our 2015 annual meeting of stockholders must be received by our Secretary no later than December 31, 2014 to be eligible for inclusion in our proxy statement and form of proxy relating to that meeting.

Issues for Future Proposals  

 Looking at SharkRepellent.net.

• Board is authorized to increase or decrease the size of the board without shareholder approval.
• Special meetings can only be called by shareholders holding not less than 25% of the voting power.

From Yahoo! Finance: Biogen Idec Inc.’s ISS Governance QuickScore as of Jun 1, 2014 is 1. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 2; 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.

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.