3D Systems Corporation (NYSE:DDD) is one of the stocks in my portfolio. The Company is a provider of three-dimensional (3D) printing centric solutions. Their annual meeting is coming up on 5/19/2015. ProxyDemocracy.org had the votes of 0 funds when I checked and voted on 5/10/2015. I voted with management 67% of the time and assigned 3D Systems a proxy score of 67.
3D Systems: ISS Rating
From Yahoo! Finance: 3D Systems Corporation’s ISS Governance QuickScore as of May 1, 2015 is 1. The pillar scores are Audit: 1; Board: 7; Shareholder Rights: 1; Compensation: 5. 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…. the Board.
3D Systems: Compensation
3D Systems’ Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Abraham N. Reichental at about $6.6M in 2014. I’m using Yahoo! Finance to determine market cap ($2.5B) and Wikipedia’s rule of thumb regarding classification.
3D Systems is a mid-cap company. According to Equilar (page 6), the median CEO compensation at mid-cap corporations was $4.9 million in 2013, so 3D Systems’ pay was way above median. 3D Systems’ shares outperformed the S&P 500 over the most recent five and ten year periods, but substantially lagged during the last six months, one and two year periods.
The MSCI GMIAnalyst report I reviewed gave 3D Systems an overall grade of ‘F.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination. 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. 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.
- A decline has occurred in the CEO’s equity holdings in the company over last year. Diminished executive exposure to company stock may work to reduce the alignment between the CEO’s interests and those of shareholders.
- 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.
Because of the high pay, declining performance and the above issues, I voted against the stock plan.
3D Systems: Board of Directors and Board Proposals
Generally, when I vote against the pay package or stock plan I also vote against the compensation committee, since they recommend the pay package to the full board. Therefore, I voted against: Karen E. Welke, Chair, G. Walter Lowenbaum, II, Daniel S. Van Riper.
I am also concerned our Board is getting stale. We have only one woman director, 60% have been on the board for 11 years or more. 50% have been on the board for 16 years or more. Not good.
3D Systems: Auditor
I voted to ratify the auditor, since I see no potential conflicts of interest.
Shareholder Proposals at 3D Systems
There were none.
CorpGov Recommendations for 3D Systems – Votes Against Board Position in Bold
|1.1||Elect Director William E. Curran||For||Against|
|1.2||Elect Director Peter H. Diamandis||For||Against|
|1.3||Elect Director Charles W. Hull||For||Against|
|1.4||Elect Director William D. Humes||For||Against|
|1.5||Elect Director Jim D. Kever||For||Against|
|1.6||Elect Director G. Walter Loewenbaum, II||Against||Against|
|1.7||Elect Director Kevin S. Moore||For||Against|
|1.8||Elect Director Abraham N. Reichental||For||Against|
|1.9||Elect Director Daniel S. Van Riper||Against||Against|
|1.10||Elect Director Karen E. Welke||Against||Against|
|2||Approve Omnibus Stock Plan||Against||Against|
|3||Ratify BDO USA, LLP as Auditors||For||For|
Corporate Governance Issues at 3D Systems
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Special meetings can only be called by shareholders holding not less than 50.1% of the voting power.
3D Systems Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals:
Under Rule 14a-8 of the Exchange Act, certain stockholder proposals may be eligible for inclusion in our 2016 Proxy Statement and form of proxy. The date by which we must receive stockholder proposals to be considered for inclusion in the Proxy Statement and form of proxy for the 2016 Annual Meeting of Stockholders is December 3, 2015 or (if the date of our 2016 Annual Meeting is changed by more than 30 days from May 19, 2016) a reasonable time before we begin to print and mail the proxy materials for the 2016 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 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.
Economic performance explains only 12% of variance in CEO pay. More than 60% is explained by company size, industry, and existing company pay policy. None of those are performance driven. Additional findings by Mark Van Clieaf of Organizational Capital Partners, as reported in The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design:
- Some 75% of companies have no balance sheet or capital efficiency metrics in their disclosed performance measurement and long-term incentive plan design.
- Only 17% of companies specifically disclose return on invested capital or economic profit as a long-term performance measure for long-term executive compensation.
- Some 47% of S&P 1500 companies over the last five years (2008 – 2012) did not generate a positive cumulative economic profit or return on invested capital greater than their cost of capital.
- More than 85% of the S&P 1500 have no disclosed line of sight process metrics aligned to future value such as innovation and growth drivers.
- Only 10% of all long-term incentives have a disclosed longest performance period for named officers of greater than three years.