Kite Pharma

Kite Pharma: Proxy Score 50

Kite PharmaKite Pharma Inc (NASD:KITE), a clinical-stage biopharmaceutical company, focused on the development and commercialization of novel cancer immunotherapy products and is one of the stocks in my portfolio. Their annual meeting is coming up on 6/8/2015. ProxyDemocracy.org had the vote of one fund when I checked and voted on 6/1/2015.  However, I also picked up the votes of CalSTRS. I voted with management 50% of the time and assigned Kite Pharma, Inc. a proxy score of 50.

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

Kite Pharma: ISS Rating

From Yahoo! Finance: Kite Pharma had no reported ISS Governance QuickScore as of June 1, 2015. It is probably too new and too small.

Kite Pharma: Compensation

Kite Pharma, Inc. Summary Compensation Table (p. 26) shows the highest paid named executive officer (NEO) was President and CEO Arie Belldegrun, at about $16.2M in 2014.  I’m using Yahoo! Finance to determine market cap ($2.37B) and Wikipedia’s rule of thumb regarding classification.

Kite Pharma, Inc. 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 Kite Pharma, Inc.’s pay is above that number. To its credit, Kite Pharma, Inc. shares out-performed the NASDAQ over the most recent one year period.

The GMIAnalyst report was very abbreviated:MSCI GMIAnalyst

  •  Kite Pharma Inc is currently rated as having Average Accounting & Governance Risk (AGR). This places them in the 71st percentile among all companies in North America, indicating higher accounting and governance risk than 29% of companies.

There was no opportunity to vote against the pay package.

Kite Pharma: 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. Because of the classified board, the only member of the compensation committee up for election is Mr. Bonderman, who chairs the committee. I voted against him. I also voted against Mr. Belldegrun because he is overboarded, sits on too many other boards (four). I’m applying CII policy here:

Currently serving CEOs should not serve as a director of more than one other company, and then only if the CEO’s own company is in the top half of its peer group.

Kite Pharma: Accounting

I know of no potential conflict of interest, so voted to ratify the auditor.

Shareholder Proposals at Kite Pharma

None this year

CorpGov Recommendations for Kite Pharma – Votes Against Board Position in Bold

 # Proposal CorpGov CalSTRS CBIS
1.1 Elect Arie Belldegrun Withhold Withhold For
1.3 Elect Jonathan M. Peacock For For For

SharkRepellentGovernance Issues at Kite Pharma, Inc.

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 (66.7%) to amend certain charter and all bylaw provisions.

Kite Pharma, Inc. Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

To be considered for inclusion in the Company’s proxy materials for next year’s annual meeting, your proposal must be submitted in writing by December 30, 2015, to Kite Pharma, Inc., 2225 Colorado Avenue, Santa Monica, California 90404, Attn: Secretary.

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 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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