The Habit Restaurants: Proxy Score 33

The Habit Restaurants, Inc. (HABT), one of the stocks in my portfolio, operates fast casual restaurants under The Habit Burger Grill name in California, Arizona, Utah, and New Jersey, offers charbroiled hamburgers, specialty sandwiches, fresh salads, and shakes and malts. Their annual meeting is coming up on 6/23/2015. ProxyDemocracy.org had the vote of one fund when I checked and voted on 6/15/2015. I also located the vote of CalSTRS.  I voted with the board 33% of the time and assigned Premiere Global Services a proxy score of 33.

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

Habit Restaurants: ISS Rating 

None.

Habit Restaurants: Compensation 

Habit Restaurants Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Russell W. Bendel, at about $1.4M in 2014.  I’m using Yahoo! Finance to determine market cap ($476M) and Wikipedia’s rule of thumb regarding classification.

Habit Restaurants is a small-cap company.  According to Equilar (page 6), the median CEO compensation at small-cap corporations was $2.7 million in 2013, so Premiere Global Services’ pay is below that number. Habit Restaurants shares under-performed the NASDAQ substantially over the most recent six month and one year periods.

MSCI GMIAnalyst had no report I could locate on Habit Restaurants (too new and too small, I presume). 

There was no opportunity to vote on pay.

Habit Restaurants: Board of Directors and Board Proposals

I joined with both pre-disclosing funds and voted against both directors. One is the CFO; the other is affiliated. I’d like to vote for directors who are more likely to put my interests high on their priorities.

Habit Restaurants: Accounting

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

Shareholder Proposals at Habit Restaurants

None.

CorpGov Recommendations for Habit Restaurants – Votes Against Board Position in Bold

Governance Issues at The Habit Restaurant

Looking at SharkRepellent.net for provisions unfriendly to shareowners:Governance Issues at Habit Restaurant

• Classified board with staggered terms. 
• Plurality vote standard to elect directors with no resignation policy.
• Directors may only be removed for cause and only by the vote of 75% of the shares entitled to vote.
• Action can be taken without a meeting by written consent (default Delaware state statute). However, upon such time as KarpReilly, LLC and its associates cease to beneficially own at least a majority of the outstanding shares, action without a meeting by written consent is prohibited.
• Special meetings can be called by shareholders holding not less than 50% of the outstanding shares. However, upon such time as KarpReilly, LLC and its associates cease to beneficially own at least a majority of the outstanding shares, shareholders cannot call a special meeting.
• Majority vote requirement to amend all charter and bylaw provisions. However, upon such time as KarpReilly, LLC and its associates cease to beneficially own at least a majority of the outstanding shares, there will be a supermajority vote requirement (75%) to amend certain charter and all bylaw provisions.

Okay; I didn’t do my research on this one before plunging in. Dual class shares and many other issues. It could be another Google/Facebook in terms of corporate governance but without the market excitement. I’ll have to investigate further.

Habit Restaurants Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

Requirements for Stockholder Proposals to be Considered for Inclusion in our Proxy Materials. To be considered for inclusion in next year’s proxy statement, stockholder proposals must be received by our Secretary at our principal executive offices no later than the close of business on March 25, 2016.

The Habit Restaurants, Inc.. 17320 Red Hill Avenue, Suite 140, Irvine, CA 92614.

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.