Yelp

Yelp: Proxy Voting Score 20

YelpYelp Inc (NYSE:YELP), one of the stocks in my portfolio, connects people with local businesses and let’s us rate them. Their annual meeting is coming up on 5/20/2015. ProxyDemocracy.org had the votes of no funds when I checked and voted on 5/13/2015 but I did locate the votes of CalSTRS. I voted with management 20% of the time and assigned ITC Holdings a proxy score of 20.

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

Yelp: ISS Rating 

From Yahoo! Finance: American Tower Corporation’s ISS Governance QuickScore as of May 1, 2015 is 6. The pillar scores are Audit: 1; Board: 4; Shareholder Rights: 1; Compensation: 9. 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…. Compensation.

Yelp: Compensation

Yelp’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair James D. Taiclet, Jr., at about $339,000 in 2014 (CEO Jeremy Stoppelman earned $8.1M the year before). I’m using Yahoo! Finance to determine market cap ($3.6B) and Wikipedia’s rule of thumb regarding classification.

Yelp 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 Yelp’s pay last year was below median. Yelp’s shares outperformed the S&P 500 over the most recent two and five year periods. However, it underperformed the S&P 500 over the most recent six month and 1 year periods.

MSCI GMIAnalystThe MSCI GMIAnalyst report I reviewed gave Yelp an overall grade of ‘C.’ 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 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.

I voted for the pay plan.

Yelp: Board of Directors and Board Proposals 

I voted against all the directors up for election, since none own any stock in our company yet have sat on the board for up to 10 years. Directors should have some of their own skin in the game. There were no Board proposals.

Yelp: Auditor

I blindly voted against the auditor, simply following the lead of CalSTRS. Hopefully, they have good reason.

Shareholder Proposals at Yelp

None

CorpGov Recommendations for Yelp – Votes Against Board Position in Bold

ProposalBoardCalSTRSCorpGov
1.1Elect Geoff DonakerForForWithhold
1.3Elect Jeremy StoppelmanForForWithhold
3Advisory Vote on Executive CompensationForForFor

Corporate Governance Issues at Yelp

Looking at SharkRepellent.net 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.

The Board is practically begging for proposals with a list like that.

Yelp Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

To be considered for inclusion in next year’s proxy materials, you must submit your proposal, in writing, by December 12, 2015 to our Corporate Secretary at 140 New Montgomery Street, 9thFloor, San Francisco, California 94105, and you must comply with all applicable requirements of Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

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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