Guidewire Software Inc ($GWRE), which provides software products for property and casualty insurers, is one of the stocks in my portfolio. Their annual meeting is coming up on 12/4/2014. ProxyDemocracy.org had collected the votes of two funds when I checked and voted on 12/1/2014. Sorry for the late post. Tomorrow is the last day to vote online. I voted with management 33% of the time and assigned them a proxy score of 33.
Guidewire ISS Rating
From Yahoo! Finance: Guidewire Software, Inc.’s ISS Governance QuickScore as of Nov 1, 2014 is 5. The pillar scores are Audit: 1; Board: 3; Shareholder Rights: 8; Compensation: 4. 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… shareholder rights and pay.
Guidewire’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Marcus Ryu, at about $4.4M. I’m using Yahoo! Finance to determine market cap ($3.5B) and Wikipedia’s rule of thumb regarding classification.
Guidewire is a small-cap company. According to Equilar (page 6), the median CEO compensation at small-cap corporations was $2.7 million in 2013, so Guidewire’s pay is well above that, even factoring for inflation. To its credit, Guidewire shares outperformed the NASDAQ over the most recent two, five and ten year periods, while falling considerably short over the most recent one year period.
The GMIAnalyst report I reviewed gave Guidewire an overall grade of ‘C.’ According to the report:
- The board has not established a formal clawback policy regarding its executive incentive pay.
- Unvested equity awards partially or fully accelerate upon the CEO’s termination.
- The company has not disclosed specific, quantifiable performance target objectives for the CEO.
- 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.
- 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.
Like both funds reported on ProxyDemocracy.org, I voted against the pay package. I also voted against all members of the compensation committee, since they recommended and excessive amount, insufficiently related to performance. Committee members running for the board include: Andrew Brown and Craig Conway.
Guidewire Board of Directors
As indicated above, I voted against members of the compensation committee. The company has a classified board, contrary to 68% of the S&P 1500. Additionally, the board 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. More than 75% of the S&P 1500 have adopted majority or plurality plus voting standards with resignation policy. Guide wire Software’s board is also flagged for gender diversity concerns. Studies have shown that companies with too few female directors tend to be less effective and even underperform those whose boards are more diverse. Therefore, I joined with Calvert and CBIS in withholding my vote from Mr. Weatherford.
I voted to ratify Guidewire’s auditor, KPMG LLP, since less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at Guidewire
CorpGov Recommendations for Guidewire – Votes Against Board Position in Bold
|1.1||Elect Director Andrew Brown||Withhold||Withhold|
|1.2||Elect Director Craig Cornway||Withhold||Withhold|
|1.3||Elect Director Clifton Thomas Weatherford||Withhold||Withhold|
|3||Ratify Named Executive Officers’ Compensation||Against||For|
|4||Advisory Vote on Say on Pay Frequency||One Year||One Year|
Issues for the Future at Guidewire
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Classified board with staggered terms.
- Plurality vote standard to elect directors with no resignation policy.
- 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.
Mark your Calendar to Submit Future Proposals at Guidewire
To be included in our proxy statement for the 2015 annual meeting, stockholder proposals must comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934 and be received by our Secretary at our principal executive offices no later than July 2,2015, which is one hundred twenty (120) calendar days before the one-year anniversary of the date on which we first released this proxy statement to stockholders in connection with this year’s annual meeting.
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 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 % if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.