Scripps Networks

Scripps Networks Interactive (SNI): Proxy Score 50

Scripps NetworksScripps Networks Interactive, Inc. (NYSE:SNI) is one of the stocks in my portfolio. They develop lifestyle-oriented content for television and the Internet with various television and interactive brands. Their annual meeting is coming up on 5/12/2015. ProxyDemocracy.org had the votes of three funds when I checked and voted on 5/5/2015.  I voted with management 50% of the time and assigned Scripps Networks Interactive a proxy score of 50.

View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Scripps Networks 2015 proxy in order to enhance corporate governance and long-term value.

Scripps Networks’ ISS Rating 

From Yahoo! Finance (profile page): Scripps Networks Interactive, Inc.’s ISS Governance QuickScore as of Apr 1, 2015 is 9. The pillar scores are Audit: 2; Board: 9; Shareholder Rights: 10; Compensation: 3. 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…. Board and Shareholder Rights.

Scripps Networks’ Compensation

Scripps Networks Interactive Summary Compensation Table (p. 31) shows the highest paid named executive officer (NEO) was CEO/Chair Kenneth W. Lowe at about $11.8M in 2014.  I’m using Yahoo! Finance (summary page) to determine market cap ($9.5B) and Wikipedia’s rule of thumb regarding classification.

Scripps Networks Interactive is a mid-cap company.  According to Equilar (page 6), the median CEO compensation at large-cap corporations was $4.9 million in 2013, so Scripps Networks’ pay was above than that, even factoring for inflation. Scripps Networks’ shares underperformed the S&P 500 over the most recent one, two, and five year periods, outperforming during the latest ten year period.

GMIAnalyst

The GMIAnalyst report I reviewed gave Scripps Networks an overall grade of ‘D.’

I would have voted against the pay package, if given the opportunity.

Scripps Networks Board of Directors and Board Proposals

Generally, when I vote against the pay package I also vote against the compensation committee, since they recommend the pay package to the full board. Therefore, in this case I voted against:  Jarl Mohn, Chair, and Ronald W. Tysoe.

Shareholder Proposals at Scripps Networks

None for this meeting.

CorpGov Recommendations for Scripps Networks – Votes Against Board Position in Bold

# PROPOSAL TEXT CorpGov CBIS DOMINI CALVERT 
1.1 Elect Director Jarl Mohn Withhold For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1.2 Elect Director Nicholas B. Paumgarten For For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1.3 Elect Director Jeffrey Sagansky For For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1.4 Elect Director Ronald W. Tysoe Withhold For For Withhold
Calvert Social Index Fund: Director sits on the board at more than 4 public companies.There is both gender and racial diversity on the board.

Corporate Governance Issues at Scripps Networks

Looking at SharkRepellent.net for provisions unfriendly to shareowners:SharkRepellent

  • Plurality vote standard to elect directors with no resignation policy.
  • Action can be taken without a meeting by written consent.
  • Special meetings can only be called by shareholders holding not less than 50% of the voting power.

Scripps Networks Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

Any shareholder proposals intended to be presented at the Company’s 2016 Annual Meeting of Shareholders must be received by the Company at 9721 Sherrill Blvd., Knoxville, Tennessee 37932, on or before December 4, 2015, for inclusion in the Company’s proxy statement and form of proxy relating to the 2016 Annual Meeting of Shareholders. Shareholder proposals may be presented only by holders of Common Voting Shares, the only class of shares entitled to vote on such proposals.

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.

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.

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