LinkedIn Corporation (LNKD), together with its subsidiaries, operates an online professional network worldwide. It is one of the stocks in my portfolio. Their annual meeting is coming up on 6/3/2015. ProxyDemocracy.org had the vote of two funds when I checked and voted on 5/28/2015. I voted with management 17% of the time and assigned LinkedIn Corporation a proxy score of 17.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the LinkedIn Corporation 2015 proxy in order to enhance corporate governance and long-term value.
LinkedIn Corporation: ISS Rating
From Yahoo! Finance: LinkedIn Corporation’s ISS Governance QuickScore as of May 1, 2015 is 9. The pillar scores are Audit: 1; Board: 3; Shareholder Rights: 10; Compensation: 9. 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 compensation.
LinkedIn Corporation: Compensation
LinkedIn Corporation Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Jeffrey Weiner, at about $15.6M in 2014. I’m using Yahoo! Finance to determine market cap ($24.9B) and Wikipedia’s rule of thumb regarding classification.
LinkedIn Corporation is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so LinkedIn’s pay is above that number. Although under-performing over the most recent two year period, LinkedIn Corporation shares out-performed the S&P 500 NASDAQ over the most recent one and five year periods. Therefore, the CEO is overpaid for mixed results.
LinkedIn Corporation: Compensation
The GMIAnalyst report I reviewed gave LinkedIn Corporation 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 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 directors may weaken the ability of equity awards to align directors’ interests with long-term value creation.
With far above median relative pay, mixed performance and the above issues, I voted against the pay package and stock plan.
LinkedIn Corporation: Board of Directors and Board Proposals
Generally, when I vote against the pay package I also vote against the compensation committee, since they recommended the pay package to the full board: Messrs. Battle and Meresman and Ms. Kilgore. However, because the LinkedIn Corporation has a classified board, I could only vote against M. Kilgore.
I am also concerned that two directors at LinkedIn own no stock in our company and that A. George Battle sits on five boards, too many to give full attention to LinkedIn Corporation. Additionally, the board includes no minorities. For these reasons, I decided to vote against Mr. Weiner as well.
LinkedIn Corporation: Accounting
I voted against ratifying LinkedIn Corporation’s auditor, since more than 25 percent of total audit fees paid are attributable to standard audit work.
Shareholder Proposals at LinkedIn Corporation
With regard to shareholder proposals, I voted in favor of the New York State Comptroller’s proposal for a report on increasing gender and racial diversity on the board. The LinkedIn Corporation seems to need the push and the cost is minimal.
CorpGov Recommendations for LinkedIn Corporation – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CALVERT | CBIS |
|---|---|---|---|---|
| 1.1 | Elect Director Leslie Kilgore | Withhold | Withhold | Withhold |
| Calvert Social Index Fund: The board does not include at least one minority director after the election. | ||||
| 1.2 | Elect Director Jeffrey Weiner | Withhold | Withhold | Withhold |
| Calvert Social Index Fund: The board does not include at least one minority director after the election. | ||||
| 2 | Ratify Deloitte & Touche LLP as Auditors | For | Against | Against |
| Calvert Social Index Fund: More than 25 percent of total audit fees paid to the auditor were attributable to non-audit work. | ||||
| 3 | Amend Omnibus Stock Plan | Against | Against | Against |
| Calvert Social Index Fund: A vote AGAINST this proposal is warranted, due to the following key factors:The plan’s dilution exceeds 10 percent;Plan allows repricing;The plan has an automatic share replenishment feature; The plan permits cash buyout of awards without shareholder approval; The plan provides for the transferability of awards to a financial institution, without any details of how such a program would work. Plan cost is excessive; Estimated duration of available and proposed shares exceeds five years; The plan permits liberal recycling of shares; and The plan allows broad discretion to accelerate vesting. | ||||
| 4 | Advisory Vote to Ratify Named Executive Officers’ Compensation | Against | Against | Against |
| Calvert Social Index Fund: A vote AGAINST this proposal is warranted. The CEO received sizeable increases in cash compensation without a strong rationale and received sizeable time-vested equity grants after receiving a large mega-grant in 2013. Additionally, the compensation committee failed to engage with shareholders after compensation committee member Meresman received relatively low vote support at 2014 annual meeting. The magnitude of CEO pay exceeds the 75th percentile of the company’s peer group.The company’s long term incentive compensation is not sufficiently tied to financial performance. | ||||
| 5 | Report on Plans to Increase Board Diversity | For | For | For |
| Calvert Social Index Fund: A vote FOR this resolution is warranted, as a report on the company’s board diversification initiatives would aid investors in determining if the company is taking necessary steps to ensure that women and minority candidates are included among prospective board nominees. | ||||
Governance Issues at LinkedIn Corporation
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 (80%) to amend certain charter and all bylaw provisions.
LinkedIn Corporation Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals:
You may present proposals for action at a future meeting or submit nominations for election of directors only if you comply with the requirements of the proxy rules established by the SEC and our bylaws, as applicable. In order for a stockholder proposal to be included in our proxy statement and form of proxy for our 2016 Annual Meeting of Stockholders under rules set forth in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the proposal must be received by us no later than December 23, 2015.
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.
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