PGI

Premiere Global Services, PGI: Proxy Vote Score 40

PGIPremiere Global Services, $PGI, is one of the stocks in my portfolio. Their annual meeting is June 17, 2014. ProxyDemocracy.org had collected the votes of three funds when I checked and voted on 6/11/2014.  I voted with the board’s recommendations 40% of the time, thus assigned a proxy score of 40.  View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the PGI proxy in order to enhance PGI’s corporate governance and long-term value.  Compensation

PGI’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chairman Boland T. Jones at about $4.6M in 2013. I’m using Yahoo! Finance to determine market cap ($605M) and Wikipedia’s rule of thumb regarding classification. PGI 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 PGI’S pay is well above that. PGI shares underperformed both the NASDAQ and S&P 500 over the most recent one year period and did so substantially over five years but outperformed in the two year period. GMIAnalyst

The GMIAnalyst report I reviewed gave PGI 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 substantially above median, performance was week and because of the problems noted by GMIAnalyst, I voted against the pay package and compensation committee members Wilkie S. Colyer (Chairman) and John R. Harris. I joined with CBIS in voting against the stock plan. Frankly, I didn’t research that item but assume CBIS found it to be too dilutive.

Board Issues

  • PGI 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.
  • GMI has flagged the board as potentially entrenched due to a high number of long-serving directors. Of particular importance during periods of extended underperformance, the impact of an entrenched board can be particularly damaging to sustainable shareholder interests, and we do see the potential for such entrenchment at this firm due to a significant number of long-serving directors. While we recognize the benefits of experience, it becomes increasingly challenging to act independently with such extensive service. Long-tenured directors can often form relationships that may compromise their independence and therefore hinder their ability to provide effective oversight. We note that only 21.9% in United States have been flagged for having an entrenched board.
  • PGI 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.

I’m concerned that PGI’s board is entrenched and lacks diversity. There are no women on the board and possibly no minorities as well. Directors have served an average of 12 years on the board. PGI’s proxy admits our company has no “formal diversity policy” but diversity is considered when choosing directors. I’d like PGI to a better job in this area so am somewhat arbitrarily voting against two members of the board, J. Walker Smith Jr. and Raymond H. Pritle Jr., who have served for 13 and 17 years respectively.

Accounting

I voted to ratify the auditor.

Shareholder Proposals

There were none. However, I predict there will be in future if there is no board refreshment.

CorpGov Recommendations Below – Votes Against Board Position in Bold

# PROPOSAL TEXT CorpGov CBIS
1.1 Elect Director Boland T. Jones For Withhold
1.2 Elect Director Wilkie S. Colyer Withhold Withhold
1.3 Elect Director K. Robert Draughon For Withhold
1.4 Elect Director John R. Harris Withhold Withhold
1.5 Elect Director W. Steven Jones For Withhold
1.6 Elect Director Raymond H. Pirtle, Jr. Withhold Withhold
1.7 Elect Director J. Walker Smith, Jr. Withhold Withhold
2  Ratify NEO Compensation Against For
3 Ratify Auditors For For
4 Approve Omnibus Stock Plan Against Against

Mark your Calendar

Under Rule 14a-8(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, proposals of shareholders intended to be presented at the 2015 annual meeting of shareholders must be received by us on or before December 25, 2014 to be eligible for inclusion in our proxy statement and proxy card related to that meeting. Only proper proposals under Rule 14a-8 of the Exchange Act that are timely received will be included in the proxy statement and proxy card for our 2015 annual meeting of shareholders.

Issues for Future Proposals  

 Looking at SharkRepellent.net.

  • Plurality vote standard to elect directors with no resignation policy.
  • Directors may only be removed for cause and only by the vote of 75% of the shares entitled to vote.
  • No action can be taken without a meeting by written consent unless unanimous. 
  • Special meetings can only be called by shareholders holding not less than 75% of the voting power.
  • Supermajority vote requirement (75%) to amend all bylaw provisions.

From Yahoo! FinancePremiere Global Services, Inc.’s ISS Governance QuickScore as of Jun 1, 2014 is 2. The pillar scores are Audit: 1; Board: 3; Shareholder Rights: 4; Compensation: 2. 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.

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