Medivation Inc

Medivation: Proxy Score 55

MedivationMedivation Inc (NASD:MDVN) is a biopharmaceutical company focused on the development and commercialization of therapies to treat serious diseases for which there are limited treatment options.. It is one of the stocks in my portfolio. Their annual meeting is coming up on 6/16/2015. ProxyDemocracy.org had the vote of two funds when I checked and voted on 6/9/2015.  I voted with the board 55% of the time and assigned Caterpillar a proxy score of 55.

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

Medivation: ISS Rating

From Yahoo! Finance: Medivation, Inc.’s ISS Governance QuickScore as of Jun 1, 2015 is 5. The pillar scores are Audit: 1; Board: 4; Shareholder Rights: 7; Compensation: 5. 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, Shareholder Rights and Compensation.

Medivation: Compensation

Medivation Summary Compensation Table (p. 57) shows the highest paid named executive officer (NEO) was Chairman and CEO David T. Hung, M.D., at about $10.6M in 2014.  I’m using Yahoo! Finance to determine market cap ($8.8B) and Wikipedia’s rule of thumb regarding classification.

Medivation 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 Medivation’s pay is above that number. Medivation shares out-performed the S & P 500 over the most recent one, two, five, and ten year periods.

The MSCI GMIAnalyst report I reviewed gave Medivation an overall grade of ‘C.’ According to the report:MSCI GMIAnalyst

  •  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 total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.
  • 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.

With far above median relative pay and the above issues, I voted against the pay package and stock plan.

Medivation: 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: Dawn Svoronos,  W. Anthony Vernon, and Wendy L. Yarno. 

I voted in favor of authorizing additional shares for the purpose of splitting the stock.

Medivation: Accounting

I voted in favor of ratifying Medivation’s auditor, since less than 25 percent of total audit fees paid appear attributable to non-audit work.

Shareholder Proposals at Medivation

None

CorpGov Recommendations for Medivation – Votes Against Board Position in Bold

# PROPOSAL TEXT CorpGov CALVERT  CBIS
1.1 Elect Director Kim D. Blickenstaff For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1.2 Elect Director Kathryn E. Falberg For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1.3 Elect Director David T. Hung For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1.4 Elect Director C. Patrick Machado For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1.5 Elect Director Dawn Svoronos Against For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1.6 Elect Director W. Anthony Vernon Against For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1.7 Elect Director Wendy L. Yarno Against For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
2 Ratify PricewaterhouseCoopers LLP as Auditors For For Against
Calvert Social Index Fund: Less than 25 percent of total audit fees paid to the auditor were attributable to non-audit work.
3 Advisory Vote to Ratify Named Executive Officers’ Compensation Against Against For
Calvert Social Index Fund: 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.
4 Amend Omnibus Stock Plan Against Against Against
Calvert Social Index Fund: The plan’s dilution exceeds 10 percent.
5 Increase Authorized Common Stock For For For
Calvert Social Index Fund: We support this authorization.

SharkRepellentGovernance Issues at Medivation

Looking at SharkRepellent.net for provisions unfriendly to shareowners:

  • Shareholders cannot call special meetings.

Medivation Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by January 5, 2016, to our Corporate Secretary at 525 Market Street, 36th Floor, 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 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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