SolarCity: Proxy Score 17

SolarCitySolarCity Corp (NASD:SCTY), one of the stocks in my portfolio, is a global networking company that delivers products to consumers, businesses and service providers. Their annual meeting is coming up on 6/2/2015. had the votes of one fund when I checked on 5/25/2015. I voted with Board recommendations 17% of the time.

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

SolarCity: ISS Rating

From Yahoo! Finance: SolarCity Corporation’s ISS Governance QuickScore as of May 1, 2015 is 10. The pillar scores are Audit: 10; Board: 10; Shareholder Rights: 8; Compensation: 7. 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…. everywhere.

SolarCity: Compensation

SolarCity Summary Compensation Table shows the highest paid named executive officer (NEO) was CFO Brad W. Buss at about $31.3M in 2014. I’m using Yahoo! Finance to determine market cap ($6.1B) and Wikipedia’s rule of thumb regarding classification.

SolarCity 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 SolarCity’s pay was substantially above median. SolarCity shares outperformed the NASDAQ over the latest 2 year period but underperformed during the last 1 year period.

MSCI GMIAnalystThe MSCI GMIAnalyst report I reviewed gave NetGear an overall grade of ‘D.’ 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.
  • 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.

Given out-sized pay and the above, I voted Against the pay plan.

SolarCity: Board of Directors and Board Proposals

I normally vote against the directors on the compensation committee, since they recommended the pay package and stock plan to the full board. In this case, the members are John H. N. Fisher – Chairman, Nancy E. Pfund, and Bennet Van de Bunt. Additionally, neither Fisher or Pfund own shares of SolarCity, despite both serving on the board for over 8 years. However, since the board is classified I could not vote against any of the compensation committee members, so I voted against the directors who are standing for election… all directors ultimately vote on the compensation package.

I voted in favor of one year frequency for say on pay, instead of the three year frequency advised by the board. More frequent accountability to shareholders is better than less frequent accountability.

SolarCity: Auditor

I voted in favor of the auditor, since I see no potential conflict of interest.

Shareholder Proposals at SolarCity

There are none.

CorpGov Recommendations for SolarCity – Votes Against Board Position in Bold

1aElect Director Elon MuskAgainstAgainst
Trillium Asset Management: Research Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board.
1bElect Director Donald R. Kendall, Jr.AgainstAgainst
Trillium Asset Management: Research Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board.
1cElect Director Jeffrey B. StraubelAgainstAgainst
Trillium Asset Management: Research Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board.
2Ratify Ernst & Young LLP as AuditorsForFor
Trillium Asset Management: Research Less than 25 percent of total audit fees paid are attributable to non-audit work.
3Ratify Named Executive Officers’ CompensationAgainstFor
Trillium Asset Management: Research A vote FOR this proposal is warranted as no significant concerns were found in reviewing the company’s executive compensation programs and practices at this time.
4Advisory Vote on Say on Pay FrequencyOne YearOne Year
Trillium Asset Management: Research A vote for the adoption of an ANNUAL Management Say on Pay proposal is warranted.

Corporate Governance Issues at SolarCity

Looking at for provisions unfriendly to shareowners:SharkRepellent

  • 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 and all bylaw provisions.

SolarCity Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to our corporate secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2016 annual meeting of stockholders, our corporate secretary must receive the written proposal at our principal executive offices not later than December 25, 2015. In addition, stockholder proposals must comply with the requirements of Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to: SolarCity Corporation, Attention: Corporate Secretary, 3055 Clearview Way, San Mateo, California 94402,


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.

, , , , , , , , , ,

Comments are closed.

Powered by WordPress. Designed by WooThemes