Medivation $MDVN, a promising biopharmaceutical company developing novel therapies to treat serious diseases, is one of the stocks in my portfolio. Their next annual meeting is June 27, 2014. ProxyDemocracy.org had collected the votes of one fund when I checked and voted on 6/17/2014. I voted with the Board’s recommendations 91% of the time and assigned them a proxy score of 91. View Proxy Statement. Would it bust their budget to add a hyperlinked table of contents? Read Warnings below. What follows are my recommendations on how to vote the MDVN proxy in order to enhance corporate governance and long-term value.
ISS Rating
From Yahoo! Finance: Medivation, Inc.’s ISS Governance QuickScore as of Jun 1, 2014 is 10. The pillar scores are Audit: 1; Board: 6; Shareholder Rights: 10; Compensation: 10. 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. That gives us a quick idea of where to focus.
Compensation
MDVN’s Summary Compensation Table (page 53) shows the highest paid named executive officer (NEO) was Senior VP of New Projects, Stephen M. Kelsey, at about $3.5M. CEO David T. Hung, M.D. got about $8.7M in 2012 and $2.3M in 2013, so don’t cry for him. I’m using Yahoo! Finance to determine market cap ($5.8B) and Wikipedia’s rule of thumb regarding classification. MDVN 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 NDVN’s pay is below that. MDVN shares handily outperformed the NASDAQ over the most recent one, two and five year periods. 
The GMIAnalyst report I reviewed gave MDVN an overall grade of ‘B.’ However, according to the report:
- 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.
- 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 annual incentives did not rise or fall in line with annual financial performance, reflecting a potential misalignment in the short-term incentive design.
Because pay was substantially below median and despite the problems noted by GMIAnalyst, I voted in favor of the pay package. However, I joined with Calvert in voting against the stock plan as too dilutive.
Accounting
I voted to ratify the the MDVN auditor, PricewaterhouseCoopers LLP.
Board Proposals
I voted in favor of the Yahoo! Board’s proposal to allow those continuously holding 25% of common shares for a year to hold a special meeting. I would have liked to see a 10% threshold but this proposal certainly represents movement in the right direction.
Shareholder Proposals
None this year.
CorpGov Recommendations Below – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CALVERT |
|---|---|---|---|
| 1.1 | Elect Director Daniel D. Adams | For | For |
| 1.2 | Elect Director Kim D. Blickenstaff | For | For |
| 1.3 | Elect Director Kathryn E. Falberg | For | For |
| 1.4 | Elect Director David T. Hung | For | For |
| 1.5 | Elect Director C. Patrick Machado | For | For |
| 1.6 | Elect Director Dawn Svoronos | For | For |
| 1.7 | Elect Director W. Anthony Vernon | For | For |
| 1.8 | Elect Director Wendy L. Yarno | For | For |
| 2 | Ratify Auditors | For | For |
| 3 | Ratify NEO Compensation | For | Against |
| 4 | Amend Omnibus Stock Plan | Against | Against |
Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Plurality vote standard to elect directors with no resignation policy.
- Shareholders cannot call special meetings.
- Supermajority vote requirement (66.67%) to amend all bylaw provisions.
Mark your Calendar
To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by January 9, 2015, to our Corporate Secretary at 525 Market Street, 36th Floor, San Francisco, California 94105, and you must comply with all applicable requirements of Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
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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